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 811-8326
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MFS VARIABLE INSURANCE TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: December 31
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Date of reporting period: June 30, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) CAPITAL OPPORTUNITIES SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) CAPITAL OPPORTUNITIES SERIES
Objective: Seeks capital appreciation.
TABLE OF CONTENTS
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LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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EXPENSE TABLE 3
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PORTFOLIO OF INVESTMENTS 4
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FINANCIAL STATEMENTS 9
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NOTES TO FINANCIAL STATEMENTS 14
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RESULTS OF SHAREHOLDER MEETING 18
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PROXY VOTING POLICIES AND INFORMATION 18
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QUARTERLY PORTFOLIO DISCLOSURE 18
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CONTACT INFORMATION BACK COVER
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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.
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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
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LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
Stocks 98.8%
Cash & Other Net Assets 0.2%
TOP TEN HOLDINGS
Wyeth3.6%
-----------------------------------------------
Sprint Corp. 2.8%
-----------------------------------------------
Viacom Inc. "B" 2.5%
-----------------------------------------------
Verizon Communications 2.4%
-----------------------------------------------
J.P. Morgan Chase & Co. 2.2%
-----------------------------------------------
Symantec Corp. 2.0%
-----------------------------------------------
Owens-Illinois, Inc. 1.9%
-----------------------------------------------
Cisco Systems, Inc. 1.9%
-----------------------------------------------
Nortel Networks Corp. 1.9%
-----------------------------------------------
PNC Financial Services Group, Inc. 1.9%
-----------------------------------------------
EQUITY SECTORS
Technology 24.3%
-----------------------------------------------
Health Care 17.8%
-----------------------------------------------
Financial Services 13.4%
-----------------------------------------------
Leisure 9.4%
-----------------------------------------------
Retailing 8.5%
-----------------------------------------------
Utilities & Communications 6.3%
-----------------------------------------------
Energy 5.7%
-----------------------------------------------
Industrial Goods & Services 3.7%
-----------------------------------------------
Consumer Staples 3.4%
-----------------------------------------------
Basic Materials 3.3%
-----------------------------------------------
Autos & Housing 1.8%
-----------------------------------------------
Special Products and Services 1.3%
-----------------------------------------------
Transportation 0.9%
-----------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees, distribution (12b-1) fees, and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
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Actual 0.90% $1,000.00 $976.00 $4.41
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.90% $1,000.00 $1,020.33 $4.51
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Actual 1.15% $1,000.00 $975.10 $5.63
Service -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.09 $5.76
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* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 99.8%
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ISSUER SHARES $ VALUE
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Aerospace - 1.1%
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Lockheed Martin Corp. 26,840 $ 1,741,111
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Apparel Manufacturers - 0.5%
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Reebok International Ltd.^ 18,430 $ 770,927
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Automotive - 0.6%
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SPX Corp. 20,960 $ 963,741
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Banks & Credit Companies - 7.0%
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American Express Co. 10,690 $ 569,025
Bank of America Corp. 46,326 2,112,929
Citigroup, Inc. 24,299 1,123,332
Freddie Mac^ 13,310 868,215
J.P. Morgan Chase & Co. 100,030 3,533,060
PNC Financial Services Group, Inc.^ 54,920 2,990,943
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$ 11,197,504
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Biotechnology - 4.0%
- ----------------------------------------------------------------------------------------------------------
Amgen, Inc.* 32,870 $ 1,987,320
Biogen Idec, Inc.* 18,960 653,172
Genzyme Corp.* 16,461 989,141
Gilead Sciences, Inc.* 24,640 1,083,914
ImClone Systems, Inc.*^ 7,070 218,958
MedImmune, Inc.* 53,540 1,430,589
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$ 6,363,094
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Broadcast & Cable TV - 6.9%
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Comcast Corp., "Special A"* 24,260 $ 726,587
Grupo Televisa S.A., ADR 7,820 485,544
Interpublic Group of Cos., Inc.*^ 160,930 1,960,127
News Corp., "A" 50,760 821,297
Time Warner, Inc.* 35,240 588,860
Univision Communications, Inc., "A"* 15,340 422,617
Viacom, Inc., "B" 124,082 3,973,106
Walt Disney Co. 86,960 2,189,653
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$ 11,167,791
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Brokerage & Asset Managers - 2.9%
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Mellon Financial Corp. 94,950 $ 2,724,116
Merrill Lynch & Co., Inc. 35,960 1,978,160
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$ 4,702,276
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Business Services - 0.8%
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Accenture Ltd., "A"* 46,650 $ 1,057,556
Getty Images, Inc.*^ 3,910 290,357
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$ 1,347,913
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Chemicals - 0.4%
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Monsanto Co. 10,190 $ 640,645
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Computer Software - 7.8%
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Amdocs Ltd.* 20,950 $ 553,709
Check Point Software Technologies Ltd.* 13,670 270,666
Citrix Systems, Inc.*^ 6,870 148,804
Compuware Corp.* 142,990 1,028,098
Mercury Interactive Corp.*^ 35,950 1,379,042
Microsoft Corp. 109,910 2,730,164
Oracle Corp.* 133,293 1,759,468
Symantec Corp.* 149,020 3,239,695
VERITAS Software Corp.* 56,850 1,387,140
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$ 12,496,786
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Computer Software - Systems - 3.0%
- ----------------------------------------------------------------------------------------------------------
Dell, Inc.* 57,520 $ 2,272,615
Infosys Technologies Ltd., ADR 5,560 430,733
LG.Philips LCD Co. Ltd., ADR*^ 17,600 402,336
Sun Microsystems, Inc.* 478,960 1,786,521
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$ 4,892,205
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Construction - 1.2%
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Masco Corp. 58,800 $ 1,867,488
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Consumer Goods & Services - 2.6%
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Avon Products, Inc. 7,030 $ 266,086
Cintas Corp.^ 19,460 751,156
Gillette Co. 41,000 2,075,830
Procter & Gamble Co. 20,530 1,082,958
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$ 4,176,030
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Containers - 2.0%
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Owens-Illinois, Inc.* 122,500 $ 3,068,625
Smurfit-Stone Container Corp.* 12,690 129,057
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$ 3,197,682
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Electrical Equipment - 2.4%
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Cooper Industries Ltd., "A" 5,710 $ 364,869
General Electric Co. 15,625 541,406
Tyco International Ltd. 99,941 2,918,277
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$ 3,824,552
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Electronics - 3.8%
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Analog Devices, Inc. 25,080 $ 935,735
KLA-Tencor Corp.^ 12,680 554,116
Linear Technology Corp. 3,030 111,171
Marvell Technology Group Ltd.* 25,580 973,063
PMC-Sierra, Inc.*^ 53,070 495,143
Samsung Electronics Co. Ltd. 650 307,965
Samsung Electronics Co. Ltd., GDR* 3,720 890,010
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 61,272 558,801
Texas Instruments, Inc. 18,090 507,786
Xilinx, Inc. 32,620 831,810
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$ 6,165,600
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Energy - Independent - 1.6%
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Apache Corp. 6,820 $ 440,572
Devon Energy Corp. 42,960 2,177,213
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$ 2,617,785
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Food & Drug Stores - 0.5%
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CVS Corp. 29,300 $ 851,751
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Food & Non-Alcoholic Beverages - 1.3%
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General Mills, Inc. 16,470 $ 770,631
PepsiCo, Inc. 20,490 1,105,026
SYSCO Corp.^ 8,290 300,015
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$ 2,175,672
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Forest & Paper Products - 0.9%
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Bowater, Inc.^ 42,770 $ 1,384,465
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Gaming & Lodging - 0.6%
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Carnival Corp.^ 11,380 $ 620,779
Royal Caribbean Cruises Ltd.^ 6,800 328,848
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$ 949,627
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General Merchandise - 2.9%
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Kohl's Corp.* 23,670 $ 1,323,390
Target Corp. 19,080 1,038,143
Wal-Mart Stores, Inc. 48,720 2,348,304
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$ 4,709,837
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Insurance - 3.5%
- ----------------------------------------------------------------------------------------------------------
Allstate Corp. 40,020 $ 2,391,195
American International Group, Inc. 11,650 676,865
Conseco, Inc.* 87,650 1,912,523
Hartford Financial Services Group, Inc. 7,883 589,491
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$ 5,570,074
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Internet - 1.1%
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eBay, Inc.* 21,090 $ 696,181
Yahoo!, Inc.* 30,410 1,053,707
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$ 1,749,888
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Leisure & Toys - 1.5%
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Activision, Inc.* 13,823 $ 228,356
Electronic Arts, Inc.* 20,650 1,168,997
Mattel, Inc. 58,800 1,076,040
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$ 2,473,393
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Machinery & Tools - 0.2%
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Illinois Tool Works, Inc. 3,400 $ 270,912
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Medical & Health Technology & Services - 1.2%
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Tenet Healthcare Corp.*^ 161,690 $ 1,979,086
- ----------------------------------------------------------------------------------------------------------
Medical Equipment - 1.5%
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Boston Scientific Corp.* 4,010 $ 108,270
Fisher Scientific International, Inc.*^ 6,420 416,658
Medtronic, Inc. 14,780 765,456
St. Jude Medical, Inc.* 19,040 830,334
Waters Corp.* 9,010 334,902
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$ 2,455,620
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Oil Services - 4.1%
- ----------------------------------------------------------------------------------------------------------
BJ Services Co. 17,370 $ 911,578
Cooper Cameron Corp.*^ 25,810 1,601,511
GlobalSantaFe Corp. 53,105 2,166,684
Noble Corp. 30,860 1,898,199
- ----------------------------------------------------------------------------------------------------------
$ 6,577,972
- ----------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.4%
- ----------------------------------------------------------------------------------------------------------
EMC Corp.* 113,130 $ 1,551,012
Network Appliance, Inc.* 22,350 631,835
- ----------------------------------------------------------------------------------------------------------
$ 2,182,847
- ----------------------------------------------------------------------------------------------------------
Pharmaceuticals - 11.1%
- ----------------------------------------------------------------------------------------------------------
Abbott Laboratories 60,690 $ 2,974,417
Allergan, Inc.^ 12,350 1,052,714
Eli Lilly & Co. 25,570 1,424,505
Johnson & Johnson 42,440 2,758,600
Merck & Co., Inc. 82,930 2,554,244
Roche Holding AG 6,340 798,444
Teva Pharmaceutical Industries Ltd., ADR 12,100 376,794
Wyeth 131,503 5,851,884
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$ 17,791,602
- ----------------------------------------------------------------------------------------------------------
Restaurants - 0.4%
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Outback Steakhouse, Inc. 12,820 $ 579,977
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Specialty Stores - 4.6%
- ----------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.* 8,570 $ 358,055
Circuit City Stores, Inc. 46,230 799,317
Gap, Inc. 63,420 1,252,545
Home Depot, Inc. 19,540 760,106
Lowe's Cos., Inc. 19,390 1,128,886
OfficeMax, Inc.^ 41,810 1,244,684
PETsMART, Inc. 22,550 684,393
Staples, Inc. 21,335 454,862
TJX Cos., Inc. 30,240 736,344
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$ 7,419,192
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Telecommunications - Wireline - 7.2%
- ----------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 159,400 $ 3,046,134
Comverse Technology, Inc.* 32,700 773,355
Corning, Inc.* 74,980 1,246,168
Nokia Corp., ADR 153,710 2,557,734
Nortel Networks Corp.*^ 1,154,110 3,012,227
QUALCOMM, Inc. 29,700 980,397
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$ 11,616,015
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Telephone Services - 5.3%
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Sprint Corp.^ 181,030 $ 4,542,043
Verizon Communications, Inc. 113,500 3,921,425
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$ 8,463,468
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Trucking - 0.9%
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Expeditors International of Washington, Inc. 6,360 $ 316,792
FedEx Corp. 6,020 487,680
United Parcel Service, Inc., "B" 9,310 643,880
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$ 1,448,352
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Utilities - Electric Power - 1.0%
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Calpine Corp.* 472,130 $ 1,605,242
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Total Stocks (Identified Cost, $149,103,919) $ 160,388,122
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Short-Term Obligation - 0.6%
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ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $ 998,000 $ 998,000
- ----------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 9.7%
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ISSUER SHARES $ VALUE
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Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 15,592,832 $ 15,592,832
- ----------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $165,694,751)(+) $ 176,978,954
- ----------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (10.1)% (16,196,358)
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Net Assets - 100.0% $ 160,782,596
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(+) As of June 30, 2005, the fund had two securities representing $1,106,409 and 0.7% of net assets that were
fair valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
^ All or a portion of this security is on loan.
< The rate shown represents an annualized yield at time of purchase.
The following abbreviations are used in the Portfolio of Investments and are defined:
ADR = American Depository Receipts
GDR = Global Depository Receipts
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $15,222,448 of securities on loan
(identified cost, $165,694,751) $176,978,954
Cash 161
Receivable for investments sold 84,867
Receivable for series shares sold 9,894
Interest and dividends receivable 126,866
Receivable from investment adviser 52,007
Other assets 37
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Total assets $177,252,786
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LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $431,392
Payable for series shares reacquired 371,883
Collateral for securities loaned, at value 15,592,832
Payable to affiliates
Management fee 3,340
Shareholder servicing costs 334
Distribution fees 119
Administrative services fee 61
Accrued expenses and other liabilities 70,229
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Total liabilities $16,470,190
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Net assets $160,782,596
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NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $222,971,185
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 11,284,638
Accumulated net realized gain (loss) on investments and foreign currency
transactions (73,806,242)
Accumulated undistributed net investment income 333,015
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $160,782,596
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 12,240,833
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $143,395,238 / 10,910,960 shares of beneficial interest
outstanding) $13.14
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $17,387,358 / 1,329,873 shares of beneficial interest outstanding) $13.07
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
FOR SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $1,064,358
Interest 30,038
Foreign taxes withheld (15,500)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $1,078,896
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $617,702
Distribution fees 22,190
Shareholder servicing costs 29,132
Administrative services fee 11,653
Trustees' compensation 2,795
Custodian fee 31,426
Printing 41,966
Auditing fees 22,808
Legal fees 2,997
Shareholder solicitation expenses 19,120
Miscellaneous 8,876
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $810,665
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (13,388)
Reduction of expenses by investment adviser (52,390)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $744,887
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $334,009
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $5,228,371
Foreign currency transactions (210)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $5,228,161
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(9,838,342)
Translation of assets and liabilities in foreign currencies (224)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(9,838,566)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(4,610,405)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(4,276,396)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $334,009 $1,209,237
Net realized gain (loss) on investments and foreign currency transactions 5,228,161 17,827,433
Net unrealized gain (loss) on investments and foreign currency translation (9,838,566) 835,789
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(4,276,396) $19,872,459
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(1,107,323) $(551,552)
Service Class (97,889) (26,489)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1,205,212) $(578,041)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(10,189,829) $(5,490,007)
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(15,671,437) $13,804,411
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period $176,454,033 $162,649,622
At end of period (including accumulated undistributed net investment income of
$333,015 and $1,204,218, respectively) $160,782,596 $176,454,033
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $13.57 $12.11 $9.53 $13.55 $19.26 $21.74
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.03 $0.09 $0.05 $0.02 $0.01 $0.01
Net realized and unrealized gain (loss) on
investments and foreign currency (0.36) 1.41 2.55 (4.03) (4.32) (0.66)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.33) $1.50 $2.60 $(4.01) $(4.31) $(0.65)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.04) $(0.02) $(0.01) $(0.00)+++ $--
From net realized gain on investments and foreign
currency transactions -- -- -- -- (1.40) (1.83)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.10) $(0.04) $(0.02) $(0.01) $(1.40) $(1.83)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.14 $13.57 $12.11 $9.53 $13.55 $19.26
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& (2.40)++ 12.46^^ 27.39 (29.69) (23.48) (3.66)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.96+ 0.88 0.94 0.93 0.96 0.93
Expenses after expense reductions## 0.90+ 0.90 0.90 0.90 0.91 0.94
Net investment income 0.43+ 0.74 0.45 0.21 0.06 0.03
Portfolio turnover 35 76 65 105 102 109
Net assets at end of period (000 Omitted) $143,395 $158,082 $150,436 $105,323 $163,014 $140,043
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED -------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000*
(UNAUDITED)
Net asset value, beginning of period $13.48 $12.05 $9.48 $13.51 $19.24 $21.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.01 $0.07 $0.02 $0.00+++ $(0.02) $(0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency (0.35) 1.38 2.55 (4.03) (4.31) (2.21)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.34) $1.45 $2.57 $(4.03) $(4.33) $(2.23)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.07) $(0.02) $-- $-- $-- $--
From net realized gain on investments and foreign
currency transactions -- -- -- -- (1.40) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.07) $(0.02) $-- $-- $(1.40) $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.07 $13.48 $12.05 $9.48 $13.51 $19.24
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& (2.49)++ 12.09^^ 27.11 (29.83) (23.68) (10.39)++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.21+ 1.13 1.19 1.16 1.16 1.11+
Expenses after expense reductions## 1.15+ 1.15 1.15 1.13 1.11 1.12+
Net investment income (loss) 0.18+ 0.54 0.20 (0.01) (0.14) (0.11)+
Portfolio turnover 35 76 65 105 102 109
Net assets at end of period (000 Omitted) $17,387 $18,372 $12,214 $7,992 $11,197 $8,201
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of the Service Class shares, May 1, 2000, through December 31, 2000.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
*** Certain expenses have been reduced without which performance would have been lower.
^^ The series' net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with series sales. The
non-recurring accrual did not have a material impact on the net asset value per share based on the shares outstanding on
the day the proceeds were recorded.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
(+) 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.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Capital Opportunities Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies, which offer variable annuity and/or life insurance products. As of
June 30, 2005, there were 51 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on 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.
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. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $8,866 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $4,522 under this agreement. These amounts are shown as
a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from ordinary income $578,041 $267,482
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,204,218
Capital loss carryforward (77,094,025)
Unrealized appreciation (depreciation) 19,182,826
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration.
EXPIRATION DATE
December 31, 2009 $(27,342,680)
December 31, 2010 (49,751,345)
-------------------------------------------------------------
Total $(77,094,025)
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.15% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the six months
ended June 30, 2005, the fee was $28,829, which equated to 0.035% annually of
the series' average daily net assets. MFSC also receives payment from the series
for out-of-pocket expenses paid by MFSC on behalf of the series. For the six
months ended June 30, 2005, these costs amounted to $303.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets. The administrative services fee incurred for
the six months ended June 30, 2005 was equivalent to an annual effective rate
of 0.0142% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The series does not pay compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $383, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. On July 28, 2004, the series accrued an estimate of the amount
to be received pursuant to this matter in the amount of $40,068, which did not
have a material impact on the net asset value per share based on the shares
outstanding on the day the proceeds were recorded. The proceeds were paid to the
series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$57,139,374 and $66,171,625, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $167,635,129
------------------------------------------------------
Gross unrealized appreciation $14,538,190
Gross unrealized depreciation (5,194,365)
------------------------------------------------------
Net unrealized appreciation (depreciation) $9,343,825
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 412,961 $5,401,213 1,289,648 $15,880,838
Shares issued to shareholders in reinvestment
of distributions 88,515 1,107,323 45,470 551,552
Shares reacquired (1,241,446) (16,265,153) (2,106,006) (26,166,316)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (739,970) $(9,756,617) (770,888) $(9,733,926)
SERVICE CLASS SHARES
Shares sold 128,961 $1,676,555 712,230 $8,667,238
Shares issued to shareholders in reinvestment
of distributions 7,862 97,889 2,193 26,488
Shares reacquired (169,396) (2,207,656) (365,881) (4,449,807)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (32,573) $(433,212) 348,542 $4,243,919
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $531, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Capital Opportunities Series,
which was held on
March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
------------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- ------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- ------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- ------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- ------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- ------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- ------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- ------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- ------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- ------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- ------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- ------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VVS-SEM 8/05 29M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) RESEARCH SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) RESEARCH SERIES
Objective: Seeks to provide long-term growth of capital and future income.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 8
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 17
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 17
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 17
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.8%
Cash & Other Net Assets 1.2%
TOP TEN HOLDINGS
TOTAL S.A., ADR2.8%
------------------------------------------------
Legg Mason, Inc. 2.6%
------------------------------------------------
Goldman Sachs Group, Inc. 2.4%
------------------------------------------------
Wyeth 2.3%
------------------------------------------------
SLM Corp. 2.2%
------------------------------------------------
Altria Group, Inc. 2.1%
------------------------------------------------
PepsiCo, Inc. 2.1%
------------------------------------------------
PNC Financial Services Group, Inc. 2.1%
------------------------------------------------
Bank of America Corp. 2.0%
------------------------------------------------
Franklin Resources, Inc. 2.0%
------------------------------------------------
EQUITY SECTORS
Financial Services 20.5%
------------------------------------------------
Capital Goods 13.9%
------------------------------------------------
Health Care 13.1%
------------------------------------------------
Consumer Cyclicals 13.0%
------------------------------------------------
Energy 12.3%
------------------------------------------------
Technology 11.9%
------------------------------------------------
Consumer Staples 8.6%
------------------------------------------------
Telecommunications 5.5%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees, distribution (12b-1) fees, and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the series'
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the series
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 series) 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 series
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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.93% $1,000.00 $1,007.70 $4.63
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.93% $1,000.00 $1,020.18 $4.66
- -------------------------------------------------------------------------------
Actual 1.18% $1,000.00 $1,007.20 $5.87
Service -----------------------------------------------------------------------
Class Hypothetical* 1.18% $1,000.00 $1,018.94 $5.91
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by
your series.
It is categorized by broad-based asset classes.
Stocks - 98.8%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
United Technologies Corp. 70,340 $ 3,611,959
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Diageo PLC 104,790 $ 1,539,648
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Columbia Sportswear Co.^* 33,260 $ 1,642,711
Nike, Inc., "B" 32,820 2,842,212
- -----------------------------------------------------------------------------------------------------------------------
$ 4,484,923
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 7.5%
- -----------------------------------------------------------------------------------------------------------------------
Bank of America Corp. 131,320 $ 5,989,505
J.P. Morgan Chase & Co. 106,930 3,776,768
PNC Financial Services Group, Inc. 114,500 6,235,670
SLM Corp. 130,720 6,640,576
- -----------------------------------------------------------------------------------------------------------------------
$ 22,642,519
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 4.7%
- -----------------------------------------------------------------------------------------------------------------------
Amgen, Inc.* 63,450 $ 3,836,187
Biogen Idec, Inc.* 43,150 1,486,517
Gilead Sciences, Inc.* 67,200 2,956,128
ImClone Systems, Inc.^* 67,440 2,088,617
MedImmune, Inc.^* 97,320 2,600,390
Neurocrine Biosciences, Inc.^* 30,200 1,270,212
- -----------------------------------------------------------------------------------------------------------------------
$ 14,238,051
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc., "A"^* 103,360 $ 2,847,568
Viacom, Inc., "B" 65,730 2,104,675
Walt Disney Co. 131,340 3,307,141
- -----------------------------------------------------------------------------------------------------------------------
$ 8,259,384
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 9.5%
- -----------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 77,390 $ 5,957,482
Goldman Sachs Group, Inc. 70,050 7,146,501
Legg Mason, Inc. 76,849 8,000,749
Lehman Brothers Holdings, Inc.^ 40,710 4,041,689
Mellon Financial Corp. 125,200 3,591,988
- -----------------------------------------------------------------------------------------------------------------------
$ 28,738,409
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Getty Images, Inc.^* 62,670 $ 4,653,874
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Monsanto Co. 70,560 $ 4,436,107
Nalco Holding Co.* 217,160 4,262,851
- -----------------------------------------------------------------------------------------------------------------------
$ 8,698,958
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 4.3%
- -----------------------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 96,210 $ 2,542,830
MicroStrategy, Inc., "A"^* 48,360 2,565,014
Oracle Corp.* 295,750 3,903,900
Symantec Corp.* 189,950 4,129,513
- -----------------------------------------------------------------------------------------------------------------------
$ 13,141,257
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Dell, Inc.* 124,380 $ 4,914,254
Sun Microsystems, Inc.* 390,860 1,457,908
- -----------------------------------------------------------------------------------------------------------------------
$ 6,372,162
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Masco Corp. 142,150 $ 4,514,684
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
Avon Products, Inc. 18,970 $ 718,014
Career Education Corp.^* 53,080 1,943,259
Gillette Co. 33,820 1,712,307
Procter & Gamble Co. 53,670 2,831,092
- -----------------------------------------------------------------------------------------------------------------------
$ 7,204,672
- -----------------------------------------------------------------------------------------------------------------------
Containers - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc.* 164,890 $ 4,130,494
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. 151,090 $ 4,411,828
W.W. Grainger, Inc.^ 27,310 1,496,315
- -----------------------------------------------------------------------------------------------------------------------
$ 5,908,143
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
Analog Devices, Inc. 79,490 $ 2,965,772
- -----------------------------------------------------------------------------------------------------------------------
KLA-Tencor Corp.^ 32,080 1,401,896
Marvell Technology Group Ltd.* 41,130 1,564,585
Xilinx, Inc. 48,060 1,225,530
- -----------------------------------------------------------------------------------------------------------------------
$ 7,157,783
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
EOG Resources, Inc.^ 43,410 $ 2,465,688
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp. 12,320 $ 1,312,203
ConocoPhillips 86,130 4,951,614
Total S.A., ADR^ 72,490 8,470,457
- -----------------------------------------------------------------------------------------------------------------------
$ 14,734,274
- -----------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
CVS Corp. 92,340 $ 2,684,324
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 3.3%
- -----------------------------------------------------------------------------------------------------------------------
CoolBrands International, Inc.* 95,180 $ 319,516
Nestle S.A. 12,872 3,285,105
PepsiCo, Inc. 117,620 6,343,247
- -----------------------------------------------------------------------------------------------------------------------
$ 9,947,868
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc. 281,400 $ 1,260,672
Bowater, Inc.^ 55,930 1,810,454
- -----------------------------------------------------------------------------------------------------------------------
$ 3,071,126
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Target Corp. 75,310 $ 4,097,617
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
American International Group, Inc. 100,930 $ 5,864,033
Endurance Specialty Holdings Ltd. 38,560 1,458,339
Genworth Financial, Inc., "A" 108,570 3,282,071
- -----------------------------------------------------------------------------------------------------------------------
$ 10,604,443
- -----------------------------------------------------------------------------------------------------------------------
Internet - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Yahoo!, Inc.* 98,170 $ 3,401,591
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 84,560 $ 4,786,942
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Sandvik AB 69,350 $ 2,565,282
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 188,240 $ 2,304,058
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR 54,510 $ 1,596,053
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Sempra Energy 38,580 $ 1,593,740
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 5.0%
- -----------------------------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 136,878 $ 5,584,622
Halliburton Co. 81,990 3,920,762
Noble Corp. 89,650 5,514,372
- -----------------------------------------------------------------------------------------------------------------------
$ 15,019,756
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
EMC Corp.* 235,660 $ 3,230,899
Network Appliance, Inc.* 55,590 1,571,529
- -----------------------------------------------------------------------------------------------------------------------
$ 4,802,428
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.6%
- -----------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 63,400 $ 3,107,234
Eli Lilly & Co. 79,670 4,438,416
Endo Pharmaceuticals Holdings, Inc.* 144,970 3,809,812
Johnson & Johnson 48,880 3,177,200
Medicis Pharmaceutical Corp., "A" 47,520 1,507,810
Wyeth 154,170 6,860,565
- -----------------------------------------------------------------------------------------------------------------------
$ 22,901,037
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 51,810 $ 2,343,884
Rare Hospitality International, Inc.^* 44,130 1,344,641
- -----------------------------------------------------------------------------------------------------------------------
$ 3,688,525
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Lyondell Chemical Co.^ 157,720 $ 4,166,962
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.0%
- -----------------------------------------------------------------------------------------------------------------------
Gap, Inc. 247,200 $ 4,882,200
Lowe's Cos., Inc.^ 39,000 2,270,580
PETsMART, Inc. 68,380 2,075,333
- -----------------------------------------------------------------------------------------------------------------------
$ 9,228,113
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 103,647 $ 2,520,695
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 287,550 $ 5,495,080
QUALCOMM, Inc. 33,470 1,104,845
- -----------------------------------------------------------------------------------------------------------------------
$ 6,599,925
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
CenturyTel, Inc. 37,990 $ 1,315,594
Sprint Corp. 221,910 5,567,722
Verizon Communications, Inc. 21,500 742,825
- -----------------------------------------------------------------------------------------------------------------------
$ 7,626,141
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 99,990 $ 6,465,353
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
CNF, Inc. 88,200 $ 3,960,180
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
CMS Energy Corp.* 59,160 $ 890,950
Exelon Corp.^ 45,790 2,350,401
- -----------------------------------------------------------------------------------------------------------------------
$ 3,241,351
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $280,034,059) $299,370,392
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 7.4%
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 22,367,156 $ 22,367,156
- -----------------------------------------------------------------------------------------------------------------------
Total Investments(+) (Identified Cost, $302,401,215) $321,737,548
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (6.2)% (18,912,136)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $302,825,412
- -----------------------------------------------------------------------------------------------------------------------
(+) As of June 30, 2005, the series had three securities representing $7,390,036 and 2.4% of net assets that were fair
valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
^ All or a portion of this security is on loan.
ADR = American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $21,850,290 of securities on loan
(identified cost, $302,401,215) $321,737,548
Receivable for investments sold 4,347,127
Receivable for series shares sold 47,968
Interest and dividends receivable 229,526
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $326,362,169
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable to custodian $594,085
Payable for investments purchased 101,534
Payable for series shares reacquired 356,735
Collateral for securities loaned, at value 22,367,156
Payable to affiliates
Management fee 6,281
Shareholder servicing costs 430
Distribution fees 118
Administrative services fee 115
Accrued expenses and other liabilities 110,303
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $23,536,757
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $302,825,412
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $595,165,379
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 19,337,275
Accumulated net realized gain (loss) on investments and
foreign currency transactions (312,520,820)
Accumulated undistributed net investment income 843,578
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $302,825,412
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 19,738,630
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $291,752,268 / 19,014,253 shares of beneficial interest
outstanding) $15.34
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $11,073,144 / 724,377 shares of beneficial interest outstanding) $15.29
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $2,310,299
Interest 85,796
Foreign taxes withheld (60,898)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $2,335,197
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,209,555
Distribution fees 12,497
Shareholder servicing costs 56,859
Administrative services fee 22,785
Trustees' compensation 7,485
Custodian fee 74,940
Printing 45,406
Auditing fees 23,244
Legal fees 5,768
Shareholder solicitation expenses 38,580
Miscellaneous 4,755
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $1,501,874
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (10,454)
Reduction of expenses by investment adviser (749)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $1,490,671
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $844,526
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $18,907,354
Foreign currency transactions (6,142)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $18,901,212
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(18,693,077)
Translation of assets and liabilities in foreign currencies (980)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(18,694,057)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $207,155
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,051,681
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
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.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $844,526 $1,582,206
Net realized gain (loss) on investments and foreign currency transactions 18,901,212 31,637,935
Net unrealized gain (loss) on investments and foreign currency translation (18,694,057) 16,434,435
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,051,681 $49,654,576
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(1,528,338) $(3,713,537)
Service Class (32,178) (74,698)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1,560,516) $(3,788,235)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(45,349,147) $(56,339,354)
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(45,857,982) $(10,473,013)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period $348,683,394 $359,156,407
At end of period (including accumulated undistributed net investment income of
$843,578 and $1,559,568, respectively) $302,825,412 $348,683,394
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED --------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $15.30 $13.35 $10.78 $14.32 $20.80 $23.34
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.04 $0.06 $0.10 $0.06 $0.03 $0.01
Net realized and unrealized gain (loss) on
investments and foreign currency 0.07 2.04 2.55 (3.57) (4.15) (1.00)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.11 $2.10 $2.65 $(3.51) $(4.12) $(0.99)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.07) $(0.15) $(0.08) $(0.03) $(0.00)+++ $(0.01)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (2.36) (1.54)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.07) $(0.15) $(0.08) $(0.03) $(2.36) $(1.55)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.34 $15.30 $13.35 $10.78 $14.32 $20.80
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.77++*** 15.85+*** 24.71^^ (24.54) (21.25) (4.85)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.93+ 0.88 0.88 0.87 0.89 0.85
Expenses after expense reductions## 0.93+ 0.88 0.88 0.87 0.89 0.85
Net investment income 0.53+ 0.47 0.83 0.52 0.20 0.05
Portfolio turnover 42 118 124 98 99 93
Net assets at end of period (000 Omitted) $291,752 $339,259 $352,464 $488,917 $808,889 $1,083,760
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ----------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $15.23 $13.30 $10.74 $14.27 $20.78 $22.88
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.02 $0.03 $0.07 $0.04 $0.00+++ $(0.03)^
Net realized and unrealized gain (loss) on
investments and foreign currency 0.09 2.02 2.54 (3.56) (4.15) (2.07)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.11 $2.05 $2.61 $(3.52) $(4.15) $(2.10)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.05) $(0.12) $(0.05) $(0.01) $-- $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (2.36) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.05) $(0.12) $(0.05) $(0.01) $(2.36) $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.29 $15.23 $13.30 $10.74 $14.27 $20.78
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.72++*** 15.57+*** 24.37^^ (24.72) (21.39) (9.18)++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.18+ 1.13 1.13 1.10 1.09 1.05+
Expenses after expense reductions## 1.18+ 1.13 1.13 1.10 1.09 1.05+
Net investment income (loss) 0.31+ 0.21 0.58 0.32 0.00 (0.15)+
Portfolio turnover 42 118 124 98 99 93
Net assets at end of period (000 Omitted) $11,073 $9,424 $6,693 $6,211 $7,601 $3,543
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the class' inception, May 1, 2000 (Service Class), through the stated period end.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
*** Certain expenses have been reduced without which performance would have been lower.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
^ The per share amount is not in accordance with the net investment income for the period because of the
timing of sales of series shares and the amount of per share net investment income at such time.
^^ The series' net asset value and total return calculation include proceeds received on March 26, 2003 for
the partial payment of a non-recurring litigation settlement from Cendant Corporation, recorded as a
realized gain on investment transactions. The proceeds resulted in an increase in the net asset value of
$0.02 per share based on shares outstanding on the day the proceeds were received. Excluding the effect of
this payment from the ending net asset value per share, the Initial Class and Service Class shares total
returns for the year ended December 31, 2003 would have each been lower by approximately 0.22%.
+ The series' net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection
with series sales. The non-recurring accrual resulted in an increase in the net asset value of $0.01 per
share based on shares outstanding on the day the proceeds were recorded.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Research Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 100 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official closing
price as reported by an independent pricing service on the primary market or
exchange on which they are primarily traded, or at the last quoted bid price for
securities in which there were no sales during the day. Equity securities traded
over the counter are valued at the last sales price traded each day as reported
by an independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers and
dealers. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer-supplied valuations. All other short-term obligations
in the series' portfolio are valued at amortized cost, which approximates market
value as determined by the Board of Trustees. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. When pricing service information
or market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees. For example,
significant events (such as movement in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign markets
close (where the security is principally traded) and the time that the series
calculates its net asset value (generally, the close of the NYSE) that may
impact the value of securities traded in these foreign markets. In these cases,
the series may utilize information from an external vendor or other sources to
adjust closing market quotations of foreign equity securities to reflect what it
believes to be the fair value of the securities as of the series' valuation
time. Because the frequency of significant events is not predictable, fair
valuation of foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street") and J.P.
Morgan Chase and Co. ("Chase"), as lending agents, may loan the securities of
the series to certain qualified institutions (the "Borrowers") approved by the
series. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street and Chase provide the series with indemnification against
Borrower default. The series bears the risk of loss with respect to the
investment of cash collateral. On loans collateralized by cash, the cash
collateral is invested in a money market fund or short-term securities. A
portion of the income generated upon investment of the collateral is remitted to
the Borrowers, and the remainder is allocated between the series and the lending
agents. On loans collateralized by U.S. Treasury securities, a fee is received
from the Borrower, and is allocated between the series and the lending agents.
Income from securities lending is included in interest income on 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.
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. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
The series was a participant in a class-action lawsuit against Rite Aid
Corporation. On February 18, 2004 the series received a cash settlement in the
amount of $205,940.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $6,796 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $3,658 under this agreement. These amounts are shown as
a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions and wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $3,788,235 $3,343,481
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,559,568
Capital loss carryforward (330,352,148)
Unrealized appreciation (depreciation) 36,961,448
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on December 31, 2009, $(167,500,935) and
December 31, 2010, $ (162,851,213).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified
retirement and pension plans that invest in the series, and affiliates of
these participating insurance companies and plan sponsors) in connection with
the sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $56,446, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted
to $230.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets. The administrative services fee incurred for
the six months ended June 30, 2005 was equivalent to an annual effective rate
of 0.0142% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $749, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. On July 28, 2004, the series accrued an estimate
of the amount to be received pursuant to this matter in the amount of
$232,837, which resulted in an increase in net asset value of $0.01 per share
based on the shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$135,122,893 and $176,532,637, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $303,471,099
-------------------------------------------------------
Gross unrealized appreciation $28,729,493
Gross unrealized depreciation (10,463,044)
-------------------------------------------------------
Net unrealized appreciation (depreciation) $18,266,449
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 521,111 $7,836,510 1,351,102 $18,777,903
Shares issued to shareholders in reinvestment of distributions 106,282 1,528,338 274,670 3,713,537
Shares reacquired (3,792,779) (56,285,293) (5,854,731) (80,511,618)
- ----------------------------------------------------------------------------------------------------------------------------------
Net change (3,165,386) $(46,920,445) (4,228,959) $(58,020,178)
SERVICE CLASS SHARES
Shares sold 152,569 $2,276,392 356,245 $4,908,864
Shares issued to shareholders in reinvestment of distributions 2,243 32,178 5,537 74,698
Shares reacquired (49,267) (737,272) (246,171) (3,302,738)
- ----------------------------------------------------------------------------------------------------------------------------------
Net change 105,545 $1,571,298 115,611 $1,680,824
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $1,124, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Research Series, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
--------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VFR-SEM 8/05 62M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) INVESTORS TRUST SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) INVESTORS TRUST SERIES
Objective: Seeks mainly to provide long-term growth of capital with a
secondary objective to provide reasonable current income.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 8
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 17
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 17
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 17
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 97.9%
Cash & Other Net Assets 2.1%
TOP TEN HOLDINGS
American International Group, Inc. 2.9%
------------------------------------------------
Johnson & Johnson 2.7%
------------------------------------------------
United Technologies Corp. 2.4%
------------------------------------------------
EMC Corp. 2.4%
------------------------------------------------
Lockheed Martin Corp. 2.0%
------------------------------------------------
Dell, Inc. 2.0%
------------------------------------------------
Oracle Corp. 2.0%
------------------------------------------------
Abbott Laboratories 2.0%
------------------------------------------------
Wyeth 1.9%
------------------------------------------------
Amgen, Inc. 1.9%
------------------------------------------------
EQUITY SECTORS
Health Care 18.1%
------------------------------------------------
Financial Services 15.4%
------------------------------------------------
Technology 14.9%
------------------------------------------------
Consumer Staples 9.6%
------------------------------------------------
Energy 9.1%
------------------------------------------------
Industrial Goods & Services 8.2%
------------------------------------------------
Leisure 6.1%
------------------------------------------------
Retailing 6.1%
------------------------------------------------
Utilities & Communications 4.2%
------------------------------------------------
Basic Materials 3.3%
------------------------------------------------
Autos & Housing 1.0%
------------------------------------------------
Transportation 1.0%
------------------------------------------------
Special Products and Services 0.9%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees, distribution (12b-1) fees, and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $ 998.80 $4.45
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.90% $1,000.00 $1,020.33 $4.51
- -------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $ 993.80 $5.69
Service -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.09 $5.76
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 97.9%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 4.4%
- -----------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 225,260 $ 14,612,616
United Technologies Corp. 340,400 17,479,540
- -----------------------------------------------------------------------------------------------------------------------
$ 32,092,156
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Nike, Inc., "B" 42,400 $ 3,671,840
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 8.5%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 172,350 $ 9,174,191
Bank of America Corp. 290,120 13,232,373
Citigroup, Inc. 146,193 6,758,502
J.P. Morgan Chase & Co. 255,390 9,020,375
SLM Corp. 190,190 9,661,652
Wells Fargo & Co. 218,710 13,468,162
- -----------------------------------------------------------------------------------------------------------------------
$ 61,315,255
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 4.2%
- -----------------------------------------------------------------------------------------------------------------------
Amgen, Inc.* 223,440 $ 13,509,182
Genzyme Corp.* 110,700 6,651,963
Gilead Sciences, Inc.* 232,330 10,220,197
- -----------------------------------------------------------------------------------------------------------------------
$ 30,381,342
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.3%
- -----------------------------------------------------------------------------------------------------------------------
Interpublic Group of Cos., Inc.* 293,090 $ 3,569,836
Univision Communications, Inc., "A"* 194,130 5,348,282
Viacom, Inc., "B" 208,511 6,676,522
Walt Disney Co. 328,870 8,280,947
- -----------------------------------------------------------------------------------------------------------------------
$ 23,875,587
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 112,930 $ 11,521,119
Legg Mason, Inc. 83,530 8,696,308
Lehman Brothers Holdings, Inc. 87,020 8,639,346
- -----------------------------------------------------------------------------------------------------------------------
$ 28,856,773
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 277,520 $ 6,291,378
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 2.3%
- -----------------------------------------------------------------------------------------------------------------------
Dow Chemical Co. 148,050 $ 6,592,667
Monsanto Co. 164,300 10,329,541
- -----------------------------------------------------------------------------------------------------------------------
$ 16,922,208
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 3.8%
- -----------------------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 180,100 $ 4,760,043
Mercury Interactive Corp.* 88,610 3,399,080
Oracle Corp.* 1,090,780 14,398,296
VERITAS Software Corp.* 204,990 5,001,756
- -----------------------------------------------------------------------------------------------------------------------
$ 27,559,175
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Apple Computer, Inc.* 96,820 $ 3,563,944
Dell, Inc.* 365,250 14,431,028
Sun Microsystems, Inc.* 910,030 3,394,412
- -----------------------------------------------------------------------------------------------------------------------
$ 21,389,384
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Masco Corp. 239,580 $ 7,609,061
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 5.4%
- -----------------------------------------------------------------------------------------------------------------------
Avon Products, Inc. 128,880 $ 4,878,108
Colgate-Palmolive Co. 177,640 8,866,012
Procter & Gamble Co. 222,400 11,731,600
Reckitt Benckiser PLC 457,580 13,443,049
- -----------------------------------------------------------------------------------------------------------------------
$ 38,918,769
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. 402,180 $ 11,743,656
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 2.3%
- -----------------------------------------------------------------------------------------------------------------------
Analog Devices, Inc. 290,390 $ 10,834,451
Texas Instruments, Inc. 83,370 2,340,196
Xilinx, Inc. 128,680 3,281,340
- -----------------------------------------------------------------------------------------------------------------------
$ 16,455,987
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
EnCana Corp. 168,110 $ 6,655,475
EOG Resources, Inc. 123,720 7,027,296
- -----------------------------------------------------------------------------------------------------------------------
$ 13,682,771
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
BP PLC, ADR 120,124 $ 7,493,335
TOTAL S.A., ADR^ 88,420 10,331,877
- -----------------------------------------------------------------------------------------------------------------------
$ 17,825,212
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Groupe Danone 49,460 $ 4,332,067
Nestle S.A. 19,718 5,032,295
PepsiCo, Inc. 201,241 10,852,927
- -----------------------------------------------------------------------------------------------------------------------
$ 20,217,289
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Carnival Corp.^ 154,060 $ 8,403,973
Hilton Group PLC 712,400 3,638,686
- -----------------------------------------------------------------------------------------------------------------------
$ 12,042,659
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
Target Corp. 198,850 $ 10,819,429
Wal-Mart Stores, Inc. 147,550 7,111,910
- -----------------------------------------------------------------------------------------------------------------------
$ 17,931,339
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
American International Group, Inc. 367,618 $ 21,358,606
- -----------------------------------------------------------------------------------------------------------------------
Internet - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
eBay, Inc.* 130,810 $ 4,318,038
Yahoo!, Inc.* 172,600 5,980,590
- -----------------------------------------------------------------------------------------------------------------------
$ 10,298,628
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 147,110 $ 8,327,897
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc.^ 131,450 $ 12,528,500
Illinois Tool Works, Inc. 39,190 3,122,659
- -----------------------------------------------------------------------------------------------------------------------
$ 15,651,159
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 4.4%
- -----------------------------------------------------------------------------------------------------------------------
Boston Scientific Corp.* 242,310 $ 6,542,370
Guidant Corp. 66,150 4,451,895
Medtronic, Inc. 187,960 9,734,448
Synthes, Inc. 36,400 3,983,448
Zimmer Holdings, Inc.* 94,910 7,229,295
- -----------------------------------------------------------------------------------------------------------------------
$ 31,941,456
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 4.7%
- -----------------------------------------------------------------------------------------------------------------------
Halliburton Co. 255,600 $ 12,222,792
Noble Corp. 196,630 12,094,711
Transocean, Inc.* 180,650 9,749,681
- -----------------------------------------------------------------------------------------------------------------------
$ 34,067,184
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.3%
- -----------------------------------------------------------------------------------------------------------------------
EMC Corp.* 1,242,650 $ 17,036,732
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 9.5%
- -----------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 292,140 $ 14,317,781
Eli Lilly & Co. 206,400 11,498,544
Johnson & Johnson 305,776 19,875,440
Roche Holding AG 75,420 9,498,205
Wyeth 313,370 13,944,965
- -----------------------------------------------------------------------------------------------------------------------
$ 69,134,935
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Praxair, Inc. 148,430 $ 6,916,838
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Gap, Inc. 331,920 $ 6,555,420
Staples, Inc. 366,065 7,804,506
TJX Cos., Inc. 330,980 8,059,363
- -----------------------------------------------------------------------------------------------------------------------
$ 22,419,289
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 388,496 $ 9,448,223
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 642,422 $ 12,276,684
QUALCOMM, Inc. 101,150 3,338,962
- -----------------------------------------------------------------------------------------------------------------------
$ 15,615,646
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Sprint Corp. 386,380 $ 9,694,274
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 162,580 $ 10,512,423
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
CNF, Inc. 34,610 $ 1,553,989
FedEx Corp. 65,890 5,337,749
- -----------------------------------------------------------------------------------------------------------------------
$ 6,891,738
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
Entergy Corp. 29,400 $ 2,221,170
Exelon Corp. 176,900 9,080,272
- -----------------------------------------------------------------------------------------------------------------------
$ 11,301,442
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $655,745,281) $709,398,311
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $11,232,000 $ 11,232,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 19,530,159 $ 19,530,159
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $686,507,440) $740,160,470
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (2.1)% (15,190,377)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $724,970,093
- -----------------------------------------------------------------------------------------------------------------------
< The rate shown represents an annualized yield at time of purchase.
* Non-income producing security.
^ All or a portion of this security is on loan.
ADR = American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $19,127,917 of securities on loan
(identified cost, $686,507,440) $740,160,470
Cash 3,407
Receivable for investments sold 3,603,235
Receivable for series shares sold 601,339
Interest and dividends receivable 593,526
Other assets 377
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $744,962,354
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for series shares reacquired $262,388
Collateral for securities loaned, at value 19,530,159
Payable to affiliates
Management fee 15,212
Shareholder servicing costs 172
Distribution fees 519
Administrative services fee 275
Accrued expenses and other liabilities 183,536
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $19,992,261
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $724,970,093
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $757,177,784
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 53,651,621
Accumulated net realized loss on investments and foreign currency transactions (87,912,540)
Accumulated undistributed net investment income 2,053,228
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $724,970,093
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 40,525,388
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $649,896,069 / 36,313,005 shares of beneficial interest
outstanding) $17.90
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $75,074,024 / 4,212,383 shares of beneficial interest outstanding) $17.82
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
FOR SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $5,240,032
Interest 209,268
Foreign taxes withheld (144,127)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $5,305,173
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,657,374
Distribution fee 92,817
Shareholder servicing costs 124,457
Administrative services fee 50,295
Trustees' compensation 9,655
Custodian fee 125,963
Printing 81,035
Auditing fees 23,003
Legal fees 11,765
Shareholder solicitation expenses 79,950
Miscellaneous 22,386
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $3,278,700
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (26,024)
Reduction of expenses by investment adviser (1,641)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $3,251,035
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $2,054,138
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $33,698,340
Foreign currency transactions (6,343)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $33,691,997
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(39,383,985)
Translation of assets and liabilities in foreign currencies (11,820)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(39,395,805)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(5,703,808)
- ------------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(3,649,670)
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $2,054,138 $3,939,148
Net realized gain (loss) on investments and foreign currency transactions 33,691,997 26,794,872
Net unrealized gain (loss) on investments and foreign currency translation (39,395,805) 39,525,460
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(3,649,670) $70,259,480
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(3,638,977) $(3,214,381)
Service Class (237,524) (326,103)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(3,876,501) $(3,540,484)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $24,499,744 $85,353,409
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $16,973,573 $152,072,405
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period $707,996,520 $555,924,115
At end of period (including accumulated undistributed net investment income of
$2,053,228 and $3,875,591, respectively) $724,970,093 $707,996,520
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $18.08 $16.34 $13.47 $17.12 $21.00 $21.31
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.05 $0.11 $0.11 $0.09 $0.10 $0.12
Net realized and unrealized gain (loss) on
investments and foreign currency (0.13) 1.73 2.86 (3.66) (3.40) (0.16)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $1.84 $2.97 $(3.57) $(3.30) $(0.04)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.10) $(0.10) $(0.08) $(0.09) $(0.10)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.49) (0.17)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.10) $(0.10) $(0.10) $(0.08) $(0.58) $(0.27)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.90 $18.08 $16.34 $13.47 $17.12 $21.00
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (0.42)++** 11.36+** 22.15 (20.96) (15.95) (0.15)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.90+ 0.86 0.87 0.88 0.90 0.87
Expenses after expense reductions## 0.90+ 0.86 0.87 0.88 0.90 0.87
Net investment income 0.61+ 0.68 0.78 0.62 0.54 0.58
Portfolio turnover 33 89 88 71 84 71
Net assets at end of period (000 Omitted) $649,896 $631,827 $481,914 $378,720 $502,723 $492,481
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $17.99 $16.26 $13.41 $17.07 $20.97 $20.90
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.03 $0.07 $0.08 $0.06 $0.05 $0.05
Net realized and unrealized gain (loss) on investments
and foreign currency (0.14) 1.73 2.84 (3.65) (3.37) 0.02^
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.11) $1.80 $2.92 $(3.59) $(3.32) $0.07
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.06) $(0.07) $(0.07) $(0.07) $(0.09) $--
From net realized gain on investments and foreign
currency transactions -- -- -- -- (0.49) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.06) $(0.07) $(0.07) $(0.07) $(0.58) $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.82 $17.99 $16.26 $13.41 $17.07 $20.97
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (0.62)++** 11.12+** 21.84 (21.15) (16.10) 0.38++
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.15+ 1.11 1.12 1.11 1.10 1.10+
Expenses after expense reductions## 1.15+ 1.11 1.12 1.11 1.10 1.10+
Net investment income 0.36+ 0.42 0.53 0.41 0.30 0.36+
Portfolio turnover 33 89 88 71 84 71
Net assets at end of period (000 Omitted) $75,074 $76,169 $74,010 $53,623 $44,096 $8,808
- --------------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Service Class shares, May 1, 2000, through December 31, 2000.
** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ The series' net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection
with series sales. The non-recurring accrual did not have a material impact on the net asset value per
share based on the shares outstanding on the day the proceeds were recorded.
^ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period
because of the timing of sales of series shares and the amount of per share realized and unrealized gains
and losses at such time.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
(+) 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.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Investors Trust Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies, which offer variable annuity and/or life insurance products. As of
June 30, 2005, there were 86 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official closing
price as reported by an independent pricing service on the primary market or
exchange on which they are primarily traded, or at the last quoted bid price for
securities in which there were no sales during the day. Equity securities traded
over the counter are valued at the last sales price traded each day as reported
by an independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers and
dealers. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer-supplied valuations. All other short-term obligations
in the series' portfolio are valued at amortized cost, which approximates market
value as determined by the Board of Trustees. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. When pricing service information
or market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees. For example,
significant events (such as movement in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign markets
close (where the security is principally traded) and the time that the series
calculates its net asset value (generally, the close of the NYSE) that may
impact the value of securities traded in these foreign markets. In these cases,
the series may utilize information from an external vendor or other sources to
adjust closing market quotations of foreign equity securities to reflect what it
believes to be the fair value of the securities as of the series' valuation
time. Because the frequency of significant events is not predictable, fair
valuation of foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an amount
at least equal to the market value of the securities loaned. State Street
provides the series with indemnification against Borrower default. The series
bears the risk of loss with respect to the investment of cash collateral. On
loans collateralized by cash, the cash collateral is invested in a money market
fund or short-term securities. A portion of the income generated upon investment
of the collateral is remitted to the Borrowers, and the remainder is allocated
between the series and the lending agent. On loans collateralized by U.S.
Treasury securities, a fee is received from the Borrower, and is allocated
between the series and the lending agent. Income from securities lending is
included in interest income on 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The series may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The series may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. The series may also use contracts in a manner
intended to protect foreign currency- denominated securities from declines in
value due to unfavorable exchange rate movements. For non-hedging purposes, the
series may enter into contracts with the intent of changing the relative
exposure of the series' portfolio of securities to different currencies to take
advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded as unrealized until the contract settlement
date. On contract settlement date, the gains or losses are recorded as realized
gains or losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with U.S. generally accepted accounting principles. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $13,511 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $12,513 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions and wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from ordinary income $3,540,484 $2,938,420
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $3,875,591
Capital loss carryforward (116,115,973)
Unrealized appreciation (depreciation) 87,558,862
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration as follows:
EXPIRATION DATE
December 31, 2009 $(46,073,676)
December 31, 2010 (65,516,458)
December 31, 2011 (4,525,839)
------------------------------------------------------
Total $(116,115,973)
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. Differences in per share dividend rates are generally
due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.75% of the series' average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, is the distributor of shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS. MFSC
receives a fee from the series, for its services as shareholder servicing agent.
For the six months ended June 30, 2005, the fee was $124,011, which equated to
0.035% annually of the series' average daily net assets. MFSC also receives
payment from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $327.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0142% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons, and pays no compensation directly to Trustees who
are officers of the investment adviser, or to officers of the series, all of
whom receive remuneration for their services to the series from MFS. Certain
officers and Trustees of the series are officers or directors of MFS, MFD, and
MFSC.
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $1,641, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. On July 28, 2004, the series accrued an estimate of the amount
to be received pursuant to this matter in the amount of $130,053, which did not
have a material impact on the net asset value per share based on the shares
outstanding on the day the proceeds were recorded. The proceeds were paid to the
series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$250,898,375 and $229,298,491, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $691,996,004
-------------------------------------------------------------
Gross unrealized appreciation $64,190,437
Gross unrealized depreciation (16,025,971)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $48,164,466
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 4,187,141 $74,666,615 9,367,712 $155,091,743
Shares issued to shareholders in reinvestment
of distributions 212,185 3,638,977 199,280 3,214,381
Shares reacquired (3,025,969) (53,399,306) (4,120,848) (67,877,705)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 1,373,357 $24,906,286 5,446,144 $90,428,419
SERVICE CLASS SHARES
Shares sold 269,208 $4,783,775 697,226 $11,474,395
Shares issued to shareholders in reinvestment
of distributions 13,899 237,527 20,305 326,103
Shares reacquired (305,839) (5,427,844) (1,034,437) (16,875,508)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (22,732) $(406,542) (316,906) $(5,075,010)
Two shareholders hold more than 10% of the outstanding voting shares of the
series, comprising 54.39% of the outstanding shares at June 30, 2005.
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $930, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Investors Trust Series, which was
held on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- ------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- ------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- ------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- ------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- ------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- ------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- ------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- ------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- ------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- ------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- ------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VGI-SEM 8/05 56M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) NEW DISCOVERY SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) NEW DISCOVERY SERIES
Objective: Seeks capital appreciation.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 9
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 14
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 18
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 18
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 18
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.4%
Cash & Other Net Assets 1.6%
TOP TEN HOLDINGS
Aspect Medical Systems, Inc. 2.5%
------------------------------------------------
Silicon Laboratories, Inc. 2.2%
------------------------------------------------
Cognex Corp. 2.0%
------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 1.8%
------------------------------------------------
Cytyc Corp. 1.5%
------------------------------------------------
THQ, Inc. 1.5%
------------------------------------------------
Thoratec Corp. 1.4%
------------------------------------------------
Activision, Inc. 1.4%
------------------------------------------------
DSP Group, Inc. 1.3%
------------------------------------------------
TIBCO Software, Inc. 1.3%
------------------------------------------------
SECTOR WEIGHTINGS
Health Care 24.5%
------------------------------------------------
Technology 23.5%
------------------------------------------------
Special Products & Services 12.1%
------------------------------------------------
Leisure 8.7%
------------------------------------------------
Retailing 7.4%
------------------------------------------------
Financial Services 7.2%
------------------------------------------------
Industrial Goods & Services 7.1%
------------------------------------------------
Energy 3.6%
------------------------------------------------
Autos & Housing 1.8%
------------------------------------------------
Consumer Staples 1.2%
------------------------------------------------
Basic Materials 1.1%
------------------------------------------------
Utilities & Communications 0.2%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees, distribution (12b-1) fees, and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 1.06% $1,000.00 $ 957.60 $5.15
Initial -----------------------------------------------------------------------
Class Hypothetical* 1.06% $1,000.00 $1,019.54 $5.31
- -------------------------------------------------------------------------------
Actual 1.31% $1,000.00 $ 956.50 $6.35
Service -----------------------------------------------------------------------
Class Hypothetical* 1.31% $1,000.00 $1,018.30 $6.56
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 98.4%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Columbia Sportswear Co.^* 49,470 $ 2,443,323
Reebok International Ltd.^ 65,840 2,754,087
- -----------------------------------------------------------------------------------------------------------------------
$ 5,197,410
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 5.5%
- -----------------------------------------------------------------------------------------------------------------------
Ace Cash Express, Inc.* 102,200 $ 2,612,232
Advance America, Cash Advance Centers, Inc.^ 160,250 2,564,000
Amegy Bancorporation, Inc.^ 118,650 2,655,387
BankUnited Financial Corp., "A"^ 94,470 2,554,469
Collegiate Funding Services, Inc.^* 219,090 3,194,332
East West Bancorp, Inc.^ 51,400 1,726,526
FirstCity Financial Corp.* 77,750 909,675
Hanmi Financial Corp.^ 238,580 3,984,286
MetroCorp Bancshares, Inc. 40,410 854,672
QC Holdings, Inc.^* 157,720 2,277,477
Signature Bank* 201,720 4,921,968
Sterling Bancshares, Inc.^ 353,540 5,501,082
Wintrust Financial Corp.^ 29,350 1,536,473
- -----------------------------------------------------------------------------------------------------------------------
$ 35,292,579
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 5.2%
- -----------------------------------------------------------------------------------------------------------------------
Affymetrix, Inc.^* 85,960 $ 4,635,823
Applera Corp.* 278,820 3,058,655
CV Therapeutics, Inc.^* 125,470 2,813,037
Cypress Bioscience, Inc.^* 115,900 1,529,880
Encysive Pharmaceuticals, Inc.^* 299,010 3,232,298
Gen-Probe, Inc.* 196,200 7,108,326
Keryx Biopharmaceuticals, Inc.^* 146,280 1,930,896
Neurochem, Inc.^* 172,910 1,737,746
Neurocrine Biosciences, Inc.^* 78,420 3,298,345
Vasogen, Inc.^* 238,810 1,172,557
Vertex Pharmaceuticals, Inc.* 155,440 2,617,610
- -----------------------------------------------------------------------------------------------------------------------
$ 33,135,173
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
ADVO, Inc.^ 95,880 $ 3,053,778
R.H. Donnelley Corp.* 87,961 5,451,823
Radio One, Inc., "A"^* 330,620 4,208,793
- -----------------------------------------------------------------------------------------------------------------------
$ 12,714,394
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Affiliated Managers Group, Inc.^* 35,160 $ 2,402,483
Janus Capital Group, Inc.^ 164,130 2,468,515
MarketAxess Holdings, Inc.^* 236,740 2,675,162
- -----------------------------------------------------------------------------------------------------------------------
$ 7,546,160
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 9.8%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Data Systems Corp.* 101,200 $ 4,104,672
Bright Horizons Family Solutions, Inc.^* 138,230 5,628,726
Concur Technologies, Inc.^* 281,540 2,964,616
Corporate Executive Board Co. 69,110 5,413,386
CoStar Group, Inc.^* 130,160 5,674,976
Getty Images, Inc.^* 46,630 3,462,744
Harris Interactive, Inc.^* 1,106,980 5,390,993
Hewitt Associates, Inc., "A"* 152,700 4,048,077
SIRVA, Inc.^* 656,190 5,584,177
Stamps.com, Inc.^ 92,640 1,737,000
Ultimate Software Group, Inc.^* 411,590 6,750,076
Universal Technical Institute, Inc.^* 216,200 7,177,840
Wright Express Corp.* 262,710 4,852,254
- -----------------------------------------------------------------------------------------------------------------------
$ 62,789,537
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
UAP Holding Corp.^ 136,190 $ 2,260,754
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 9.4%
- -----------------------------------------------------------------------------------------------------------------------
ANSYS, Inc.* 80,600 $ 2,862,106
Business Objects S.A., ADR^* 293,340 7,714,842
FileNet Corp.^* 186,240 4,682,074
Kronos, Inc.* 110,660 4,469,557
McAfee, Inc.* 250,830 6,566,729
MicroStrategy, Inc., "A"^* 143,630 7,618,135
NAVTEQ Corp.* 109,730 4,079,761
Open Solutions, Inc.^* 384,290 7,804,930
Opsware, Inc.^* 1,132,410 5,797,939
TIBCO Software, Inc.^* 1,284,800 8,402,592
- -----------------------------------------------------------------------------------------------------------------------
$ 59,998,665
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
National Instruments Corp.^ 312,950 $ 6,634,540
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
BlueLinx Holdings, Inc.^ 303,620 $ 3,212,300
Headwaters, Inc.* 139,340 4,790,509
- -----------------------------------------------------------------------------------------------------------------------
$ 8,002,809
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.2%
- -----------------------------------------------------------------------------------------------------------------------
Career Education Corp.^* 119,110 $ 4,360,617
Corinthian Colleges, Inc.^* 258,403 3,299,806
PlanetOut, Inc.^* 125,880 1,097,674
Strayer Education, Inc. 71,300 6,150,338
Yankee Candle Co., Inc.^ 167,610 5,380,281
- -----------------------------------------------------------------------------------------------------------------------
$ 20,288,716
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Dionex Corp.^* 154,180 $ 6,723,790
Littelfuse, Inc.^* 285,290 7,945,326
MSC Industrial Direct Co., Inc., "A"^ 336,430 11,354,512
- -----------------------------------------------------------------------------------------------------------------------
$ 26,023,628
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 10.2%
- -----------------------------------------------------------------------------------------------------------------------
American Superconductor Corp.^* 443,800 $ 4,060,770
Amphenol Corp., "A"^ 76,040 3,054,527
Applied Films Corp.^* 252,780 6,471,168
ATMI, Inc.^* 146,610 4,253,156
Dolby Laboratories, Inc., "A"* 72,030 1,588,982
DSP Group, Inc.* 359,965 8,592,364
DTS, Inc.^* 65,470 1,167,330
FormFactor, Inc.^* 180,530 4,769,603
Lipman Electronic Engineering Ltd. 57,470 1,768,352
Mykrolis Corp.^* 219,100 3,113,411
PMC-Sierra, Inc.^* 854,430 7,971,832
Silicon Laboratories, Inc.^* 527,540 13,826,823
Volterra Semiconductor Corp.^* 315,050 4,691,095
- -----------------------------------------------------------------------------------------------------------------------
$ 65,329,413
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Evergreen Solar, Inc.^* 269,670 $ 1,733,978
Noble Energy, Inc.^ 26,630 2,014,560
Unit Corp.^* 43,830 1,928,958
- -----------------------------------------------------------------------------------------------------------------------
$ 5,677,496
- -----------------------------------------------------------------------------------------------------------------------
Engineering - Construction - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
InfraSource Services, Inc.^* 528,670 $ 5,508,741
Trex Co., Inc.* 36,500 938,050
- -----------------------------------------------------------------------------------------------------------------------
$ 6,446,791
- -----------------------------------------------------------------------------------------------------------------------
Entertainment - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
DreamWorks Animation, Inc., "A"* 149,900 $ 3,927,380
- -----------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Wild Oats Markets, Inc.^* 267,290 $ 3,060,471
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
CoolBrands International, Inc.* 524,490 $ 1,760,693
- -----------------------------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Tempur-Pedic International, Inc.* 184,590 $ 4,094,206
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
WMS Industries, Inc.^* 149,240 $ 5,036,850
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
99 Cents Only Stores* 219,340 $ 2,787,811
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
Activision, Inc.* 529,496 $ 8,747,274
Take-Two Interactive Software, Inc.^* 170,370 4,335,917
THQ, Inc.^* 324,440 9,496,359
Ubisoft Entertainment S.A.* 55,230 2,756,833
- -----------------------------------------------------------------------------------------------------------------------
$ 25,336,383
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
Cognex Corp.^ 478,090 $ 12,521,177
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Allscripts Healthcare Solutions, Inc.^* 41,610 $ 691,142
Cerner Corp.^* 45,540 3,095,354
Omnicell, Inc.^* 289,040 2,543,552
- -----------------------------------------------------------------------------------------------------------------------
$ 6,330,048
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 14.6%
- -----------------------------------------------------------------------------------------------------------------------
Adeza Biomedical Corp.* 144,800 $ 2,458,704
Align Technology, Inc.^* 315,630 2,326,193
Aspect Medical Systems, Inc.^* 534,810 15,905,249
Conceptus, Inc.^* 640,750 3,620,237
Conceptus, Inc.##* 107,600 607,940
Cyberonics, Inc.^* 99,290 4,308,193
Cytyc Corp.* 430,994 9,507,728
DJ Orthopedics, Inc.^* 141,830 3,890,397
Fisher Scientific International, Inc.^* 61,000 3,958,900
FoxHollow Technologies, Inc.^* 121,080 4,633,732
IDEXX Laboratories, Inc.^* 117,173 7,303,393
Inamed Corp.^* 44,290 2,966,101
Millipore Corp.* 124,070 7,038,491
NeuroMetrix, Inc.* 59,800 1,197,794
Penwest Pharmaceuticals Co.^* 95,170 1,124,909
ResMed, Inc.* 51,000 3,365,490
Thoratec Corp.^* 571,850 8,772,179
Ventana Medical Systems, Inc.^* 207,570 8,350,541
VNUS Medical Technologies, Inc.^* 156,110 1,878,003
- -----------------------------------------------------------------------------------------------------------------------
$ 93,214,174
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Aber Diamond Corp. 158,820 $ 4,888,480
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Atwood Oceanics, Inc.^* 24,600 $ 1,514,376
Cal Dive International, Inc.^* 49,780 2,606,979
Grey Wolf, Inc.^* 307,590 2,279,242
Lone Star Technologies, Inc.* 51,730 2,353,715
Maverick Tube Corp.^* 61,900 1,844,620
Oil States International, Inc.* 97,010 2,441,742
TETRA Technologies, Inc.^* 64,710 2,061,014
Trican Well Service Ltd.* 81,960 2,011,436
- -----------------------------------------------------------------------------------------------------------------------
$ 17,113,124
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
ScanSoft, Inc.^* 1,018,440 $ 3,849,703
Zebra Technologies Corp., "A"^* 57,400 2,513,546
- -----------------------------------------------------------------------------------------------------------------------
$ 6,363,249
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.7%
- -----------------------------------------------------------------------------------------------------------------------
Allion Healthcare, Inc.* 267,150 $ 4,381,794
Auxilium Pharmaceuticals, Inc.^* 414,580 1,977,547
Endo Pharmaceuticals Holdings, Inc.^* 189,690 4,985,053
Inspire Pharmaceuticals, Inc.^* 246,510 2,075,614
Medicis Pharmaceutical Corp., "A"^ 243,140 7,714,832
PRA International* 92,380 2,473,936
- -----------------------------------------------------------------------------------------------------------------------
$ 23,608,776
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Playboy Enterprises, Inc.,"B"^* 148,650 $ 1,923,531
Real Estate - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
CB Richard Ellis Group, Inc., "A"^* 68,870 $ 3,020,638
Restaurants - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.^* 60,000 $ 3,538,800
Rare Hospitality International, Inc.^* 89,210 2,718,229
- -----------------------------------------------------------------------------------------------------------------------
$ 6,257,029
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 5.7%
- -----------------------------------------------------------------------------------------------------------------------
A.C. Moore Arts & Crafts, Inc.^* 243,390 $ 7,693,558
Audible, Inc.^* 272,070 4,725,856
CarMax, Inc.* 121,400 3,235,310
Celebrate Express, Inc.* 98,570 1,334,638
Citi Trends, Inc.* 196,580 3,554,166
GameStop Corp., "A"* 72,390 2,367,877
Grupo Elektra S.A. de C.V 229,120 1,701,281
Restoration Hardware, Inc.^* 200,380 1,639,108
Sharper Image Corp.^* 185,500 2,361,415
Tuesday Morning Corp.^ 189,590 5,975,877
West Marine, Inc.^* 108,690 1,962,941
- -----------------------------------------------------------------------------------------------------------------------
$ 36,552,027
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
AudioCodes Ltd.^* 508,040 $ 5,054,998
Blue Coat Systems, Inc.^* 156,420 4,673,830
NeuStar, Inc., "A"* 102,360 2,620,416
- -----------------------------------------------------------------------------------------------------------------------
$ 12,349,244
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
FastWeb S.p.A.* 30,080 $ 1,293,352
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $601,984,542) $628,776,708
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $ 9,840,000 $ 9,840,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 23.6%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 150,469,940 $150,469,940
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $762,294,482)(SS) $789,086,648
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (23.5)% (149,988,513)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $639,098,135
- -----------------------------------------------------------------------------------------------------------------------
(SS) As of June 30, 2005, the series had one security representing $1,293,352 and 0.2% of net assets that was
fair valued in accordance with the policies adopted by the Board of Trustees.
## SEC Rule 144A restriction.
* Non-income producing security.
^ All or a portion of this security is on loan.
< The rate shown represents an annualized yield at time of purchase.
ADR = American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $146,533,107 of securities on loan
(identified cost, $762,294,482) $789,086,648
Cash 448
Foreign currency, at value (identified cost, $49,327) 49,046
Receivable for investments sold 12,555,159
Receivable for series shares sold 683,314
Interest and dividends receivable 83,709
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $802,458,324
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $12,089,267
Payable for series shares reacquired 629,271
Collateral for securities loaned, at value 150,469,940
Payable to affiliates
Management fee 15,776
Shareholder servicing costs 1,038
Distribution fee 1,983
Administrative services fee 240
Accrued expenses and other liabilities 152,674
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $163,360,189
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $639,098,135
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $634,757,593
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 26,791,538
Accumulated net realized gain (loss) on investments and foreign currency
transactions (19,816,083)
Accumulated net investment loss (2,634,913)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $639,098,135
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 45,120,373
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $350,236,169 / 24,597,301 shares of beneficial interest
outstanding) $14.24
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $288,861,966 / 20,523,072 shares of beneficial interest
outstanding) $14.07
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
FOR SIX MONTHS ENDED 6/30/05
NET INVESTMENT LOSS
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $962,099
Interest 191,925
Income on securities loaned 167,483
Foreign taxes withheld (15,921)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $1,305,586
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,049,744
Distribution fee 407,289
Shareholder servicing costs 119,526
Administrative services fee 47,758
Trustees' compensation 9,528
Custodian fee 128,269
Printing 112,418
Postage 429
Auditing fees 21,808
Legal fees 13,794
Shareholder solicitation expenses 59,924
Miscellaneous 16,369
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $3,986,856
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (44,779)
Reduction of expenses by investment adviser (1,578)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $3,940,499
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(2,634,913)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $36,003,898
Foreign currency transactions (24,468)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $35,979,430
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(74,634,194)
Translation of assets and liabilities in foreign currencies (911)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(74,635,105)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(38,655,675)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(41,290,588)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(2,634,913) $(5,442,898)
Net realized gain (loss) on investments and foreign currency transactions 35,979,430 49,759,746
Net unrealized gain (loss) on investments and foreign currency translation (74,635,105) 260,933
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(41,290,588) $44,577,781
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(85,760,616) $82,195,286
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(127,051,204) $126,773,067
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period $766,149,339 $639,376,272
At end of period (including accumulated net investment loss of $2,634,913 and $0,
respectively) $639,098,135 $766,149,339
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED -----------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $14.87 $13.96 $10.44 $15.27 $16.61 $17.27
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.05) $(0.09) $(0.08) $(0.07) $(0.09) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.58) 1.00 3.60 (4.76) (0.74) (0.26)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.63) $0.91 $3.52 $(4.83) $(0.83) $(0.34)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $-- $-- $-- $-- $(0.51) $(0.32)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.24 $14.87 $13.96 $10.44 $15.27 $16.61
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& (4.24)++ 6.52 33.72 (31.63) (5.03) (1.99)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.06+ 1.01 1.04 1.05 1.09 1.11
Expenses after expense reductions## 1.06+ 1.01 1.04 1.05 1.06 1.08
Net investment loss (0.66)+ (0.67) (0.62) (0.56) (0.61) (0.48)
Portfolio turnover 65 134 88 90 63 65
Net assets at end of period (000 Omitted) $350,236 $380,100 $290,364 $157,863 $194,098 $145,113
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $14.71 $13.85 $10.38 $15.22 $16.59 $17.24
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.06) $(0.13) $(0.11) $(0.09) $(0.12) $(0.07)
Net realized and unrealized gain (loss) on investments
and foreign currency (0.58) 0.99 3.58 (4.75) (0.75) (0.58)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.64) $0.86 $3.47 $(4.84) $(0.87) $(0.65)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions $-- $-- $-- $-- $(0.50) $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.07 $14.71 $13.85 $10.38 $15.22 $16.59
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& (4.35)++ 6.21 33.43 (31.80) (5.25) (3.77)++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.31+ 1.26 1.29 1.28 1.29 1.29+
Expenses after expense reductions## 1.31+ 1.26 1.29 1.28 1.26 1.26+
Net investment loss (0.91)+ (0.92) (0.88) (0.78) (0.82) (0.67)+
Portfolio turnover 65 134 88 90 63 65
Net assets at end of period (000 Omitted) $288,862 $386,049 $349,012 $176,319 $124,272 $42,304
- -------------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, May 1, 2000 (Service Class), through the stated period end.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
*** Certain expenses have been reduced without which performance would have been lower.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS New Discovery Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 117 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. The
dividend and interest income earned on the securities loaned is accounted for
in the same manner as other dividend and interest income.
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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $16,572 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of
the series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $28,207 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, real estate investment trusts,
net operating losses and wash sales.
The series paid no distributions for the years ended December 31, 2004 and
December 31, 2003.
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(49,418,250)
Unrealized appreciation (depreciation) 95,050,512
Other temporary differences (1,132)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on December 31, 2010.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with MFS
to provide overall investment advisory and administrative services, and
general office facilities. The management fee is computed daily and paid
monthly at an annual rate of 0.90% of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified retirement
and pension plans that invest in the series, and affiliates of these
participating insurance companies and plan sponsors) in connection with the
sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $118,601, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $717.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.01413% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to Tarantino
LLC in the amount of $1,578, which is shown as a reduction of total expenses in
the Statement of Operations. Additionally, MFS has agreed to bear all expenses
associated with office space, other administrative support, and supplies
provided to the ICCO. The funds can terminate the Agreement with Tarantino LLC
at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. On July 28, 2004, the series accrued an estimate of the amount
to be received pursuant to this matter in the amount of $29,985, which did not
have a material impact on the net asset value per share based on the shares
outstanding on the day the proceeds were recorded. The proceeds were paid to
the series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$432,750,615 and $512,631,473, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
Aggregate cost$768,671,745
----------------------------------------------------
Gross unrealized appreciation $58,606,474
Gross unrealized depreciation (38,191,571)
----------------------------------------------------
Net unrealized appreciation
(depreciation) $20,414,903
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 3,339,192 $46,306,576 8,568,075 $119,629,750
Shares reacquired (4,308,415) (57,232,374) (3,802,207) (52,951,235)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (969,223) $(10,925,798) 4,765,868 $66,678,515
SERVICE CLASS SHARES
Shares sold 919,139 $12,595,456 5,596,204 $77,977,819
Shares reacquired (6,634,040) (87,430,274) (4,559,101) (62,461,048)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (5,714,901) $(74,834,818) 1,037,103 $15,516,771
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $3,022, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS New Discovery Series, which was
held on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-----------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- --------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- --------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- --------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- --------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- --------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- --------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- --------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- --------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- --------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- --------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- --------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VND-SEM 8/05 64M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) MID CAP GROWTH SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) MID CAP GROWTH SERIES
Objective: Seeks long-term growth of capital.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 8
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 17
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 17
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 17
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 97.7%
Cash & Other Net Assets 2.3%
TOP TEN HOLDINGS
Getty Images, Inc. 2.4%
------------------------------------------------
American Tower Corp. 2.3%
------------------------------------------------
VERITAS Software Corp. 2.3%
------------------------------------------------
Genzyme Corp. 2.2%
------------------------------------------------
Amdocs Ltd. 2.0%
------------------------------------------------
Waters Corp. 2.0%
------------------------------------------------
Electronic Arts, Inc. 2.0%
------------------------------------------------
KLA-Tencor Corp. 2.0%
------------------------------------------------
Legg Mason, Inc. 2.0%
------------------------------------------------
Cytyc Corp. 2.0%
------------------------------------------------
SECTORS WEIGHTINGS
Health Care 24.8%
------------------------------------------------
Technology 22.0%
------------------------------------------------
Leisure 13.3%
------------------------------------------------
Special Products and Services 11.1%
------------------------------------------------
Retailing 5.6%
------------------------------------------------
Financial Services 4.9%
------------------------------------------------
Energy 4.3%
------------------------------------------------
Industrial Goods & Services 4.2%
------------------------------------------------
Utilities & Communications 3.1%
------------------------------------------------
Basic Materials 2.4%
------------------------------------------------
Autos & Housing 0.7%
------------------------------------------------
Consumer Staples 0.7%
------------------------------------------------
Transportation 0.6%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.94% $1,000.00 $959.00 $4.57
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.94% $1,000.00 $1,020.13 $4.71
- -------------------------------------------------------------------------------
Actual 1.19% $1,000.00 $957.10 $5.77
Service -----------------------------------------------------------------------
Class Hypothetical* 1.19% $1,000.00 $1,018.89 $5.96
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your portfolio.
It is categorized by broad-based asset classes.
Stocks - 97.7%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
FLIR Systems, Inc.*^ 44,600 $ 1,330,864
ITT Industries, Inc. 35,800 3,495,154
- -----------------------------------------------------------------------------------------------------------------------
$ 4,826,018
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
SLM Corp. 49,300 $ 2,504,440
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 6.9%
- -----------------------------------------------------------------------------------------------------------------------
Biogen Idec, Inc.* 71,300 $ 2,456,285
Gen-Probe, Inc.* 40,000 1,449,200
Genzyme Corp.* 91,850 5,519,267
Gilead Sciences, Inc.* 103,930 4,571,881
ImClone Systems, Inc.*^ 53,750 1,664,638
MedImmune, Inc.* 47,500 1,269,200
- -----------------------------------------------------------------------------------------------------------------------
$ 16,930,471
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 5.0%
- -----------------------------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.*^ 254,760 $ 2,917,002
Gemstar-TV Guide International, Inc.* 65,420 234,858
Grupo Televisa S.A., ADR 41,220 2,559,350
Interpublic Group of Cos., Inc.*^ 236,140 2,876,185
NTL, Inc.*^ 27,955 1,912,681
Univision Communications, Inc., "A"*^ 67,560 1,861,278
- -----------------------------------------------------------------------------------------------------------------------
$ 12,361,354
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc.^ 34,500 $ 2,655,810
Legg Mason, Inc. 47,199 4,913,888
- -----------------------------------------------------------------------------------------------------------------------
$ 7,569,698
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 8.5%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Data Systems Corp.* 84,430 $ 3,424,481
Corporate Executive Board Co. 55,280 4,330,082
DST Systems, Inc.* 67,230 3,146,364
Getty Images, Inc.* 79,410 5,896,987
Hewitt Associates, Inc., "A"*^ 79,600 2,110,196
Monster Worldwide, Inc.*^ 74,070 2,124,328
- -----------------------------------------------------------------------------------------------------------------------
$ 21,032,438
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Monsanto Co. 46,720 $ 2,937,286
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 8.7%
- -----------------------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 189,870 $ 5,018,264
Check Point Software Technologies Ltd.* 120,850 2,392,830
Mercury Interactive Corp.* 92,500 3,548,300
Symantec Corp.* 222,260 4,831,932
VERITAS Software Corp.* 227,260 5,545,144
- -----------------------------------------------------------------------------------------------------------------------
$ 21,336,470
- -----------------------------------------------------------------------------------------------------------------------
Construction - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Masco Corp. 36,300 $ 1,152,888
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.3%
- -----------------------------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"*^ 45,970 $ 3,595,773
Avon Products, Inc. 45,700 1,729,745
Career Education Corp.*^ 35,690 1,306,611
Weight Watchers International, Inc.*^ 29,700 1,532,817
- -----------------------------------------------------------------------------------------------------------------------
$ 8,164,946
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc. 52,550 $ 2,202,896
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 9.0%
- -----------------------------------------------------------------------------------------------------------------------
Analog Devices, Inc. 121,370 $ 4,528,315
Broadcom Corp., "A"*^ 44,530 1,581,260
KLA-Tencor Corp. 113,330 4,952,521
Marvell Technology Group Ltd.* 77,940 2,964,838
Novellus Systems, Inc.* 68,900 1,702,519
PMC-Sierra, Inc.*^ 285,800 2,666,514
Xilinx, Inc. 150,120 3,828,060
- -----------------------------------------------------------------------------------------------------------------------
$ 22,224,027
- -----------------------------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Tempur-Pedic International, Inc.* 25,100 $ 556,718
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 3.3%
- -----------------------------------------------------------------------------------------------------------------------
GTECH Holdings Corp. 48,400 $ 1,415,216
International Game Technology^ 79,970 2,251,156
Royal Caribbean Cruises Ltd.^ 55,720 2,694,619
WMS Industries, Inc.*^ 49,070 1,656,113
- -----------------------------------------------------------------------------------------------------------------------
$ 8,017,104
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
99 Cents Only Stores* 90,640 $ 1,152,034
Family Dollar Stores, Inc. 74,880 1,954,368
Kohl's Corp.* 36,700 2,051,897
- -----------------------------------------------------------------------------------------------------------------------
$ 5,158,299
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., "A" 67,000 $ 2,025,410
- -----------------------------------------------------------------------------------------------------------------------
Internet - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
IAC/InterActiveCorp*^ 60,370 $ 1,451,899
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 88,340 $ 5,000,927
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Roper Industries, Inc. 45,530 $ 3,249,476
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Community Health Systems, Inc.* 90,110 $ 3,405,257
LifePoint Hospitals, Inc.* 40,496 2,045,858
- -----------------------------------------------------------------------------------------------------------------------
$ 5,451,115
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 11.0%
- -----------------------------------------------------------------------------------------------------------------------
C.R. Bard, Inc. 38,340 $ 2,549,993
Cytyc Corp.* 219,952 4,852,141
DENTSPLY International, Inc.^ 71,540 3,863,160
Fisher Scientific International, Inc.*^ 44,100 2,862,090
Millipore Corp.* 29,760 1,688,285
St. Jude Medical, Inc.* 81,400 3,549,854
Thoratec Corp.*^ 74,410 1,141,449
Waters Corp.* 135,000 5,017,950
Zimmer Holdings, Inc.* 19,900 1,515,783
- -----------------------------------------------------------------------------------------------------------------------
$ 27,040,705
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Aber Diamond Corp. 12,050 $ 368,186
Aber Diamond Corp. 10,300 314,715
- -----------------------------------------------------------------------------------------------------------------------
$ 682,901
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 4.3%
- -----------------------------------------------------------------------------------------------------------------------
BJ Services Co. 81,360 $ 4,269,773
GlobalSantaFe Corp. 60,750 2,478,600
National Oilwell Varco, Inc.*^ 54,600 2,595,684
Smith International, Inc.^ 21,000 1,337,700
- -----------------------------------------------------------------------------------------------------------------------
$ 10,681,757
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Lexmark International, Inc., "A"* 50,330 $ 3,262,894
Network Appliance, Inc.* 52,700 1,489,829
- -----------------------------------------------------------------------------------------------------------------------
$ 4,752,723
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 4.7%
- -----------------------------------------------------------------------------------------------------------------------
Allergan, Inc. 36,500 $ 3,111,260
Endo Pharmaceuticals Holdings, Inc.* 84,400 2,218,030
Medicis Pharmaceutical Corp., "A" 146,660 4,653,522
Teva Pharmaceutical Industries Ltd., ADR 51,800 1,613,052
- -----------------------------------------------------------------------------------------------------------------------
$ 11,595,864
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Washington Post Co., "B" 2,800 $ 2,338,084
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Cheesecake Factory, Inc.*^ 106,565 $ 3,701,002
Outback Steakhouse, Inc. 30,220 1,367,153
- -----------------------------------------------------------------------------------------------------------------------
$ 5,068,155
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Praxair, Inc. 46,800 $ 2,180,880
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.* 78,100 $ 3,263,018
PETsMART, Inc. 88,930 2,699,026
TJX Cos., Inc. 113,510 2,763,969
- -----------------------------------------------------------------------------------------------------------------------
$ 8,726,013
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.8%
- -----------------------------------------------------------------------------------------------------------------------
Comverse Technology, Inc.* 101,340 $ 2,396,691
Juniper Networks, Inc.*^ 77,800 1,959,004
- -----------------------------------------------------------------------------------------------------------------------
$ 4,355,695
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
American Tower Corp., "A"^* 265,151 $ 5,573,474
SpectraSite, Inc.* 28,980 2,156,981
- -----------------------------------------------------------------------------------------------------------------------
$ 7,730,455
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Expeditors International of Washington, Inc.^ 28,480 $ 1,418,589
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $218,921,893) $240,725,701
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $ 5,506,000 $ 5,506,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 16.9%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 41,566,516 $ 41,566,516
- -----------------------------------------------------------------------------------------------------------------------
Total Investments(S) (Identified Cost, $265,994,409) $287,798,217
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (16.8)% (41,462,012)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $246,336,205
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
< The rate shown represents an annualized yield at time of purchase.
(S) As June 30, 2005, one security representing $314,715 and 0.1% of net assets was fair valued in accordance
with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $40,540,471 of securities on loan
(identified cost, $265,994,409) $287,798,217
Cash 667
Receivable for investments sold 34
Receivable for series shares sold 169,455
Interest and dividends receivable 55,507
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $288,023,880
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for series shares reacquired $24,977
Collateral for securities loaned, at value 41,566,516
Payable to affiliates
Management fee 5,089
Shareholder servicing costs 838
Distribution fees 379
Administrative services fee 93
Accrued expenses and other liabilities 89,783
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $41,687,675
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $246,336,205
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $228,025,796
Unrealized appreciation (depreciation) on investments 21,803,808
Accumulated net realized gain (loss) on investments and foreign currency
transactions (2,897,122)
Accumulated net investment loss (596,277)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $246,336,205
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 36,380,347
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $205,379,995 / 30,267,797 shares of beneficial interest
outstanding) $6.79
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $40,956,210 / 6,112,550 shares of beneficial interest outstanding) $6.70
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
Thess statements describe how much your series received in investment income and paid
in expenses. It also describes any gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT LOSS
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $520,006
Interest 97,288
Foreign taxes withheld (2,043)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $615,251
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $929,154
Distribution fees 54,511
Shareholder servicing costs 43,687
Administrative services fee 17,498
Trustees' compensation 5,495
Custodian fee 50,946
Printing 52,965
Postage 7,278
Auditing fees 22,911
Legal fees 4,405
Shareholder solicitation expenses 27,180
Miscellaneous 4,105
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $1,220,135
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (8,032)
Reduction of expenses by investment adviser (575)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $1,211,528
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(596,277)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $5,219,911
Foreign currency transactions (1,578)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $5,218,333
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(16,356,183)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(16,356,183)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(11,137,850)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(11,734,127)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
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.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(596,277) $(1,469,602)
Net realized gain (loss) on investments and foreign currency transactions 5,218,333 23,266,547
Net unrealized gain (loss) on investments (16,356,183) 10,285,857
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(11,734,127) $32,082,802
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(12,970,528) $27,267,669
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(24,704,655) $59,350,471
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 271,040,860 211,690,389
At end of period (including accumulated net investment loss of $596,277
and $0, respectively) $246,336,205 $271,040,860
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ------------------------------------------------ ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $7.08 $6.18 $4.51 $7.94 $9.74 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $(0.01) $(0.04) $(0.02) $(0.02) $(0.02) $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency (0.28) 0.94 1.69 (3.41) (1.68) (0.29)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.29) $0.90 $1.67 $(3.43) $(1.70) $(0.26)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $-- $-- $-- $-- $0.00+++ $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.10) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(0.10) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.79 $7.08 $6.18 $4.51 $7.94 $9.74
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** (4.10)++ 14.56 37.03 (43.20) (17.55) (2.60)++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.94+ 0.87 0.91 0.91 0.96 2.21+
Expenses after expense reductions## 0.94+ 0.87 0.89 0.90 0.91 0.91+
Net investment income (loss) (0.44)+ (0.56) (0.45) (0.34) (0.20) 0.45+
Portfolio turnover 42 83 86 144 105 84
Net assets at end of period (000 Omitted) $205,380 $221,192 $165,102 $56,909 $48,453 $5,440
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ---------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $7.00 $6.12 $4.48 $7.92 $9.72 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $(0.02) $(0.05) $(0.04) $(0.03) $(0.03) $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency (0.28) 0.93 1.68 (3.41) (1.67) (0.30)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.30) $0.88 $1.64 $(3.44) $(1.70) $(0.28)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions $-- $-- $-- $-- $(0.10) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.70 $7.00 $6.12 $4.48 $7.92 $9.72
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** (4.29)++ 14.38 36.61 (43.43) (17.63) (2.80)++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.19+ 1.12 1.16 1.14 1.16 2.41+
Expenses after expense reductions## 1.19+ 1.12 1.14 1.13 1.11 1.11+
Net investment income (loss) (0.69)+ (0.81) (0.70) (0.58) (0.32) 0.25+
Portfolio turnover 42 83 86 144 105 84
Net assets at end of period (000 Omitted) $40,956 $49,849 $46,588 $14,380 $13,929 $7,033
- -----------------------------------------------------------------------------------------------------------------------------
** For the period from the Class' inception, April 28, 2000 (Initial Class), May 1, 2000 (Service Class) through the
stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Mid Cap Growth Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 29 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street") and J.P.
Morgan Chase and Co. ("Chase"), as lending agents, may loan the securities of
the series to certain qualified institutions (the "Borrowers") approved by the
series. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street and Chase provide the series with indemnification against
Borrower default. The series bears the risk of loss with respect to the
investment of cash collateral. On loans collateralized by cash, the cash
collateral is invested in a money market fund or short-term securities. A
portion of the income generated upon investment of the collateral is remitted
to the Borrowers, and the remainder is allocated between the series and the
lending agents. On loans collateralized by U.S. Treasury securities, a fee is
received from the Borrower, and is allocated between the series and the lending
agents. Income from securities lending is included in interest income on 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.
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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $5,283 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of
the series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $2,749 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, net operating losses and wash
sales. The series paid no distributions for the years ended December 31, 2004
and December 31, 2003.
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(7,568,621)
Unrealized appreciation (depreciation) 37,661,014
Other temporary differences (47,857)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on December 31, 2010.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified
retirement and pension plans that invest in the series, and affiliates of
these participating insurance companies and plan sponsors) in connection with
the sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $43,361, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted
to $241.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets. The administrative services fee incurred for
the six months ended June 30, 2005 was equivalent to an annual effective rate
of 0.01416% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to the
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $575, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. On July 28, 2004, the series accrued an estimate
of the amount to be received pursuant to this matter in the amount of $243,
which did not have a material impact on the net asset value per share based on
the shares outstanding on the day the proceeds were recorded. The proceeds
were paid to the series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$101,905,603 and $112,459,221, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $266,493,386
----------------------------------------------------
Gross unrealized appreciation $31,388,343
Gross unrealized depreciation (10,083,512)
----------------------------------------------------
Net unrealized appreciation
(depreciation) $21,304,831
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 1,044,970 $6,967,828 7,146,386 $46,647,568
Shares reacquired (2,012,094) (13,333,865) (2,633,822) (16,714,973)
- -------------------------------------------------------------------------------------------------------------------------
Net change (967,124) $(6,366,037) 4,512,564 $29,932,595
SERVICE CLASS SHARES
Shares sold 356,809 $2,355,568 3,284,902 $21,295,639
Shares reacquired (1,363,954) (8,960,059) (3,773,711) (23,960,565)
- -------------------------------------------------------------------------------------------------------------------------
Net change (1,007,145) $(6,604,491) (488,809) $(2,664,926)
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $863, and is
included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Mid Cap Growth Series, which was
held on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- --------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- --------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- --------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- --------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- --------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- --------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- --------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- --------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- --------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- --------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- --------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VMG-SEM 8/05 4M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) MONEY MARKET SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) MONEY MARKET SERIES
Objective: Seeks as high a level of current income as is considered consistent
with the preservation of capital and liquidity.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 5
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 9
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 11
- ----------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 11
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 11
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 11
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Cash & Other Net Assets 100.0%
MONEY MARKET SECTORS*
Commercial Paper 76.0%
------------------------------------------------
Government & Agency 17.9%
------------------------------------------------
Certificate of Deposit 7.9%
------------------------------------------------
Other non short-term assets -1.8%
------------------------------------------------
MONEY MARKET MATURITY
30-59 Days 54.9%
------------------------------------------------
0-29 Days 46.9%
------------------------------------------------
Other -1.8%
------------------------------------------------
PORTFOLIO FACTS
Average Short Term Quality** A-1
------------------------------------------------
* Both accrued interest on bonds and the equivalent exposure from any
derivative holdings, if applicable, are included in this
graphical representation.
** The Portfolio Average Credit Quality rating is based upn a market weighted
average of portfolio holdings.
Percentages are based on net assets as of 6/30/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees and other series expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line in the table below 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 in the table below provides information about hypothetical
account values and hypothetical expenses based on the series' actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series is made. Therefore, the second line in the table is useful in comparing
ongoing costs associated with an investment in vehicles (such as the series)
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 series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.60% $1,000.00 $1,010.80 $2.99
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.60% $1,000.00 $1,021.82 $3.01
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PERFORMANCE SUMMARY THROUGH 6/30/05
- -------------------------------------------------------------------------------
6 Months Current Current 7-day
Class Inception Total Return 7-day yield yield without waiver
- -------------------------------------------------------------------------------
Initial Class 1/03/95 1.08% 2.61% 1.55%
- -------------------------------------------------------------------------------
Yields are based on the latest seven days ended June 30, 2005, with dividends
annualized. The yield quotations more closely reflect the current earnings of
the series than the total return quotation would.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Certificates of Deposit - 7.9%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Barclays Bank PLC NY, 3.105%, due 7/11/05 $95,000 $ 95,000
Societe Generale London, 3.195%, due 8/09/05 92,000 92,000
- -----------------------------------------------------------------------------------------------------------------------
Total Certificates of Deposit, at Amortized Cost and Value $ 187,000
- -----------------------------------------------------------------------------------------------------------------------
Commercial Paper - 76.0%<
- -----------------------------------------------------------------------------------------------------------------------
AIG Funding, Inc., 3.215%, due 8/09/05 $67,000 $ 66,767
American Express Credit Corp., 2.98%, due 7/05/05 95,000 94,969
American General Finance Corp., 3.13%, due 7/28/05 25,000 24,941
Blue Ridge Asset Funding, 3.24%, due 8/05/05@ 93,000 92,707
Ciesco LLC, 3.28%, due 8/18/05@ 90,000 89,606
Citibank Credit Card Issuance Trust, 3.15%, due 7/26/05@ 90,000 89,803
Citicorp, 3.06%, due 7/01/05 92,000 92,000
Dexia Delaware LLC, 3.33%, due 8/18/05 71,000 70,685
Dupont (E.I.) de Nemours & Co., 3.19%, due 8/08/05 94,000 93,683
Edison Asset Securitization LLC, 3.1%, due 7/22/05@ 94,000 93,830
Falcon Asset Securitization Corp., 3.1%, due 7/12/05@ 92,000 91,913
General Electric Capital Corp., 3.34%, due 8/26/05 96,000 95,501
Goldman Sachs Group, Inc., 3.16%, due 7/15/05 94,000 93,884
Govco, Inc., 3.09%, due 7/22/05@ 94,000 93,831
ING America Insurance Holdings, Inc., 3.05%, due 7/08/05 95,000 94,944
Jupiter Securitization Corp., 3.2%, due 7/22/05@ 94,000 93,825
MetLife Funding, Inc., 3.34%, due 8/23/05 96,000 95,528
Morgan Stanley, Inc., 3.23%, due 8/09/05 92,000 91,678
SBC Communications, Inc., 3.27%, due 8/15/05@ 93,000 92,620
Svenska Handelsbanken, Inc., 3.2%, due 8/03/05 50,000 49,853
Verizon Network Funding Co., 3.32%, due 8/23/05 95,000 94,536
- -----------------------------------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $1,797,104
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations - 17.9%<
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 2.99%, due 7/20/05 $100,000 $ 99,842
Fannie Mae, 3.24%, due 8/05/05 123,000 122,613
Fannie Mae, 3.1%, due 8/10/05 150,000 149,482
Freddie Mac, 2.95%, due 7/05/05 50,000 49,984
- -----------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations, at Amortized Cost and Value $ 421,921
- -----------------------------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $2,406,025
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.8)% (42,029)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,363,996
- -----------------------------------------------------------------------------------------------------------------------
< The rates shown represent annualized yields at time of purchase.
@ Security exempt from registration under Section 4(2) of the Securities Act of 1933.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This is your series' balance sheet. It shows the value of what the series
owns, how much it owes, and its resulting net assets.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at amortized cost and value $2,406,025
Cash 578
Interest receivable 589
Receivable from investment adviser 9,025
Other assets 428
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $2,416,645
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for series shares reacquired $30,733
Payable to affiliates
Management fee 33
Administrative services fee 1
Accrued expenses and other liabilities 21,882
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $52,649
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $2,363,996
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Net assets (represented by paid-in capital) $2,363,996
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,363,996
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $2,363,996 / 2,363,996 shares of beneficial interest outstanding) $1.00
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This is a summary of the investment income your series earned. Series expenses are spelled out.
FOR SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Interest income $35,280
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $6,460
Shareholder servicing costs 464
Administrative services fee 182
Trustees' compensation 664
Custodian fee 1,742
Printing 7,902
Auditing fees 16,784
Legal fees 629
Shareholder solicitation expenses 282
Miscellaneous 1,267
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $36,376
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (11)
Reduction of expenses by investment adviser (28,613)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $7,752
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $27,528
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement gives you a summary of income.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income declared as distributions to shareholders $27,528 $29,083
- -----------------------------------------------------------------------------------------------------------------------------
Series share (principal) transactions at net asset value of $1.00 per share
Net proceeds from sale of shares $1,064,333 $2,917,567
Net asset value of shares issued to shareholders in reinvestment of distributions 27,528 29,081
Cost of shares reacquired (1,531,456) (5,398,914)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(439,595) $(2,452,266)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 2,803,591 5,255,857
At end of period $2,363,996 $2,803,591
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single series share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the series (assuming reinvestment
of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.01 $0.01 $0.01 $0.01 $0.04 $0.06
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01) $(0.01) $(0.01) $(0.01) $(0.04) $(0.06)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+) 1.08++ 0.78 0.61 1.31 3.72 5.93
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.82+ 1.68 0.99 0.79 0.85 0.99
Expenses after expense reductions## 0.60+ 0.60 0.60 0.60 0.61 0.62
Net investment income 2.14+ 0.72 0.64 1.30 3.50 5.76
Net assets at end of period (000 Omitted) $2,364 $2,804 $5,256 $17,006 $20,706 $11,214
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
*** Certain expenses have been reduced without which performance would have been lower.
(+) 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.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Money Market Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 6 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVESTMENT VALUATIONS - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith approximates market value.
The series' use of amortized cost is subject to the series' compliance with
certain conditions as specified under Rule 2a-7 of the Investment Company Act
of 1940.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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 and accreted for financial statement purposes and
tax reporting purposes in accordance with generally accepted accounting
principles and federal tax regulations, respectively.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. This amount, for the six months ended June 30, 2005, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from ordinary income $29,083 $75,392
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.50%
of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.10% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the six months
ended June 30, 2005, the fee was $450, which equated to 0.035% annually of the
series' average daily net assets. MFSC also receives payment from the series for
out-of-pocket expenses paid by MFSC on behalf of the series. For the six months
ended June 30, 2005, these costs amounted to $7.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets. The administrative services fee incurred for the
six months ended June 30, 2005 was equivalent to an annual effective rate of
0.0141% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The series does not pay compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $6, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of money market investments, exclusive of securities subject
to repurchase agreements, aggregated $17,957,188 and $18,299,323 respectively.
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest.
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured line
of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve funds
rate plus 0.35%. In addition, a commitment fee, based on the average daily,
unused portion of the line of credit, is allocated among the participating funds
at the end of each calendar quarter. The commitment fee allocated to the series
for the six months ended June 30, 2005 was $7, and is included in miscellaneous
expense. The series had no significant borrowings during the six months ended
June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Money Market Series, which was held
on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VMM-SEM 8/05 1M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) GLOBAL EQUITY SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) GLOBAL EQUITY SERIES
Objective: Seeks capital appreciation.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 8
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 17
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 17
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 17
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and rebalance
regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can guarantee
a profit or protect against a loss, I would voice the opinion that, to a large
extent, a failure to have a plan, diversify contributions, and rebalance a
portfolio annually has been behind many U.S. investors' failure to reach their
long-term financial goals.
For more information on how to apply a disciplined diversification(SM) strategy
to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 103.5%
Cash & Other Net Assets -3.5%
TOP TEN HOLDINGS
Reckitt Benckiser PLC 3.6%
------------------------------------------------
Roche Holding AG 2.8%
------------------------------------------------
Air Liquide S.A. 2.5%
------------------------------------------------
American Express Co. 2.2%
------------------------------------------------
Oracle Corp. 2.1%
------------------------------------------------
Nestle S.A. 2.1%
------------------------------------------------
Sanofi-Aventis 2.0%
------------------------------------------------
Sandvik AB 1.9%
------------------------------------------------
Johnson & Johnson 1.9%
------------------------------------------------
TOTAL S.A. 1.8%
------------------------------------------------
SECTOR WEIGHTINGS
Health Care1 7.2%
------------------------------------------------
Financial Services 15.5%
------------------------------------------------
Consumer Staples 11.5%
------------------------------------------------
Technology 10.3%
------------------------------------------------
Leisure 9.6%
------------------------------------------------
Retailing 8.2%
------------------------------------------------
Utilities & Communications 6.7%
------------------------------------------------
Basic Materials 6.1%
------------------------------------------------
Industrial Goods & Services 5.7%
------------------------------------------------
Energy 5.2%
------------------------------------------------
Autos & Housing 3.4%
------------------------------------------------
Special Products and Services 3.0%
------------------------------------------------
Transportation 1.1%
------------------------------------------------
COUNTRY WEIGHTINGS
United States 35.9%
------------------------------------------------
Great Britain 15.6%
------------------------------------------------
France 13.4%
------------------------------------------------
Japan 9.8%
------------------------------------------------
Switzerland 6.8%
------------------------------------------------
Sweden 4.4%
------------------------------------------------
Spain 3.7%
------------------------------------------------
Canada 2.5%
------------------------------------------------
South Korea 1.8%
------------------------------------------------
Other 6.1%
------------------------------------------------
From time to time "cash & other net assets" may be negative due to timing of
cash receipts.
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees, distribution (12b-1) fees, and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $974.60 $5.63
Initial -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.09 $5.76
- -------------------------------------------------------------------------------
Actual 1.40% $1,000.00 $963.20 $6.81
Service -----------------------------------------------------------------------
Class Hypothetical* 1.40% $1,000.00 $1,017.85 $7.00
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your portfolio.
It is categorized by broad-based asset classes.
Stocks - 103.5%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Diageo PLC 38,879 $ 571,238
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A.^ 6,100 $ 469,186
Toray Industries, Inc. 34,000 160,655
- -----------------------------------------------------------------------------------------------------------------------
$ 629,841
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Bridgestone Corp.^ 15,000 $ 287,037
Harley-Davidson, Inc. 5,500 272,800
Toyota Motor Corp. 10,900 389,771
- -----------------------------------------------------------------------------------------------------------------------
$ 949,608
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 10.5%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 13,800 $ 734,574
Banco Bilbao Vizcaya Argentaria S.A.^ 21,950 337,384
Bangkok Bank Public Co. Ltd. 66,800 173,873
Citigroup, Inc. 7,470 345,338
Erste Bank der Oesterreichischen Sparkassen AG 6,740 337,082
OTP Bank Ltd., GDR 3,740 249,462
Powszechna Kasa Oszczednosci Bank Polski S.A 9,090 73,578
PT Bank Central Asia Tbk 340,000 125,410
Shinsei Bank Ltd.^ 46,000 246,900
UBS AG 7,072 549,617
UniCredito Italiano S.p.A 50,400 264,896
- -----------------------------------------------------------------------------------------------------------------------
$ 3,438,114
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 4,400 $ 193,556
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.9%
- -----------------------------------------------------------------------------------------------------------------------
News Corp., Inc., "B"^ 22,708 $ 384,526
Time Warner, Inc.* 8,300 138,693
Tokyo Broadcasting System, Inc.^ 5,500 90,653
Viacom, Inc., "B" 15,880 508,478
Walt Disney Co. 19,360 487,485
- -----------------------------------------------------------------------------------------------------------------------
$ 1,609,835
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
AMVESCAP PLC 49,740 $ 295,012
Goldman Sachs Group, Inc. 5,240 534,585
- -----------------------------------------------------------------------------------------------------------------------
$ 829,597
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 3.0%
- -----------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 22,900 $ 519,143
DST Systems, Inc.* 9,980 467,064
- -----------------------------------------------------------------------------------------------------------------------
$ 986,207
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 3.8%
- -----------------------------------------------------------------------------------------------------------------------
Business Objects S.A.* 6,070 $ 160,095
Oracle Corp.* 52,780 696,696
Symantec Corp.* 18,810 408,929
- -----------------------------------------------------------------------------------------------------------------------
$ 1,265,720
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.8%
- -----------------------------------------------------------------------------------------------------------------------
Dell, Inc.* 14,750 $ 582,772
- -----------------------------------------------------------------------------------------------------------------------
Construction - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Sekisui Chemical Co. Ltd. 26,000 $ 178,371
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 5.7%
- -----------------------------------------------------------------------------------------------------------------------
Gillette Co. 8,500 $ 430,355
L'Oreal S.A.^ 2,300 165,021
Procter & Gamble Co. 1,600 84,400
Reckitt Benckiser PLC 40,260 1,182,781
- -----------------------------------------------------------------------------------------------------------------------
$ 1,862,557
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 3.0%
- -----------------------------------------------------------------------------------------------------------------------
Nitto Denko Corp. 7,600 $ 432,365
Schneider Electric S.A.^ 7,280 546,617
- -----------------------------------------------------------------------------------------------------------------------
$ 978,982
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 3.3%
- -----------------------------------------------------------------------------------------------------------------------
CANON, Inc.^ 9,300 $ 487,215
Samsung Electronics Co. Ltd. 1,230 582,765
- -----------------------------------------------------------------------------------------------------------------------
$ 1,069,980
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
EnCana Corp. 11,660 $ 459,161
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
BP PLC 33,267 $ 345,896
TOTAL S.A.^ 2,550 596,547
- -----------------------------------------------------------------------------------------------------------------------
$ 942,443
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Groupe Danone 4,640 $ 406,405
Nestle S.A.^ 2,674 682,440
PepsiCo, Inc. 5,090 274,504
- -----------------------------------------------------------------------------------------------------------------------
$ 1,363,349
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Hilton Group PLC 103,800 $ 530,173
William Hill Organization Ltd. 42,580 409,670
- -----------------------------------------------------------------------------------------------------------------------
$ 939,843
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V 34,800 $ 141,086
Wal-Mart Stores, Inc. 4,700 226,540
- -----------------------------------------------------------------------------------------------------------------------
$ 367,626
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
AXA^ 19,650 $ 488,180
QBE Insurance Group Ltd.^ 21,740 264,495
Riunione Adriatica di Sicurta S.p.A.^ 3,750 72,706
- -----------------------------------------------------------------------------------------------------------------------
$ 825,381
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 2,400 $ 250,051
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Atlas Copco AB 17,830 $ 281,884
Sandvik AB 16,730 618,849
- -----------------------------------------------------------------------------------------------------------------------
$ 900,733
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 5.9%
- -----------------------------------------------------------------------------------------------------------------------
DENTSPLY International, Inc. 4,720 $ 254,880
Fisher Scientific International, Inc.* 8,470 549,703
Medtronic, Inc. 6,670 345,439
Smith & Nephew PLC 27,100 266,707
Synthes, Inc. 870 95,209
Waters Corp.* 11,530 428,570
- -----------------------------------------------------------------------------------------------------------------------
$ 1,940,508
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. 45,000 $ 168,045
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Noble Corp. 5,010 $ 308,165
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 10.7%
- -----------------------------------------------------------------------------------------------------------------------
AstraZeneca PLC 8,000 $ 330,549
Chugai Pharmaceutical Co. Ltd. 11,070 170,907
Eli Lilly & Co. 9,400 523,674
Johnson & Johnson 9,430 612,950
Roche Holding AG 7,300 919,344
Sanofi-Aventis^ 8,030 656,726
Schering AG 4,820 294,881
- -----------------------------------------------------------------------------------------------------------------------
$ 3,509,031
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Reed Elsevier N.V 23,760 $ 329,853
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Canadian National Railway Co. 6,227 $ 358,987
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 6.1%
- -----------------------------------------------------------------------------------------------------------------------
Air Liquide S.A.^ 4,808 $ 816,487
Air Products & Chemicals, Inc. 4,440 267,732
Asahi Glass Co. Ltd.^ 35,000 366,755
BOC Group PLC 20,540 368,106
Praxair, Inc. 3,880 180,808
- -----------------------------------------------------------------------------------------------------------------------
$ 1,999,888
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 5.2%
- -----------------------------------------------------------------------------------------------------------------------
Esprit Holdings Ltd. 32,500 $ 233,883
Hennes & Mauritz AB, "B"^ 7,530 264,401
Home Depot, Inc. 6,620 257,518
Kingfisher PLC 23,604 103,457
NEXT PLC 10,700 288,149
TJX Cos., Inc. 23,640 575,634
- -----------------------------------------------------------------------------------------------------------------------
$ 1,723,042
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Hutchison Telecommunications International Ltd.* 263,000 $ 260,584
Vodafone Group PLC 170,680 414,690
- -----------------------------------------------------------------------------------------------------------------------
$ 675,274
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 9,710 $ 185,558
Ericsson, Inc., "B" 88,050 281,273
- -----------------------------------------------------------------------------------------------------------------------
$ 466,831
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Singapore Telecommunications Ltd. 216,000 $ 355,086
Telefonica S.A.^ 32,602 531,767
- -----------------------------------------------------------------------------------------------------------------------
$ 886,853
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Iberdrola S.A.^ 13,330 $ 350,145
Veolia Environnement^ 2,680 100,225
- -----------------------------------------------------------------------------------------------------------------------
$ 450,370
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $30,289,757) $ 34,011,812
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 17.0%
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 5,567,106 $ 5,567,106
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $35,856,863) $ 39,578,918
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (20.5)% (6,731,147)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 32,847,771
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
GDR = Global Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $5,311,822 of securities on loan
(identified cost, $35,856,863) $39,578,918
Foreign currency, at value (identified cost, $27,881) 27,473
Receivable for investments sold 242,928
Receivable for series shares sold 22,821
Interest and dividends receivable 35,791
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $39,907,931
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable to custodian $1,409,970
Payable for series shares reacquired 57,015
Collateral for securities loaned, at value* 5,567,106
Payable to affiliates
Management fee 909
Shareholder servicing costs 68
Administrative services fee 14
Accrued expenses and other liabilities 25,078
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $7,060,160
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $32,847,771
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $28,051,038
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies 3,721,068
Accumulated undistributed net realized gain on investments and
foreign currency transactions 870,754
Accumulated undistributed net investment income 204,911
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $32,847,771
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 2,689,587
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $32,798,168 / 2,685,542 shares of beneficial interest outstanding) $12.21
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $49,603 / 4,045 shares of beneficial interest outstanding) $12.26
- -----------------------------------------------------------------------------------------------------------------------------
* Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses.
It also describes any gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $422,533
Interest 28,223
Foreign taxes withheld (50,823)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $399,933
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $167,386
Distribution fee 19
Shareholder servicing costs 5,945
Administrative services fee 2,386
Trustees' compensation 685
Custodian fee 23,823
Printing 16,917
Auditing fees 21,664
Legal fees 811
Miscellaneous 4,361
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $243,997
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (645)
Reduction of expenses by investment adviser (50,959)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $192,393
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $207,540
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $1,024,382
Foreign currency transactions (1,991)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $1,022,391
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(2,077,657)
Translation of assets and liabilities in foreign currencies (1,415)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(2,079,072)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(1,056,681)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(849,141)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $207,540 $124,329
Net realized gain (loss) on investments and foreign currency transactions 1,022,391 1,550,364
Net unrealized gain (loss) on investments and foreign currency translation (2,079,072) 2,775,451
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(849,141) $4,450,144
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(118,876) $(71,238)
Service Class (1) --
From net realized gain on investments and foreign currency transactions
Initial Class (599,605) --
Service Class (4) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(718,486) $(71,238)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $2,432,641 $9,391,876
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $865,014 $13,770,782
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 31,982,757 18,211,975
At end of period (including accumulated undistributed net investment income of
$204,911 and $116,248, respectively) $32,847,771 $31,982,757
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED -----------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $12.80 $10.86 $8.50 $9.69 $10.80 $12.04
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.08 $0.06 $0.06 $0.05 $0.04 $0.09
Net realized and unrealized gain (loss) on
investments and foreign currency (0.41) 1.92 2.30 (1.20) (1.11) (0.93)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.33) $1.98 $2.36 $(1.15) $(1.07) $(0.84)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $(0.04) $(0.00)+++ $(0.04) $(0.03) $(0.05)
From net realized gain on investments and
foreign currency transactions (0.22) -- -- -- (0.01) (0.35)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.26) $(0.04) $(0.00)+++ $(0.04) $(0.04) $(0.40)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.21 $12.80 $10.86 $8.50 $9.69 $10.80
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&** (2.54)++ 18.28 27.84 (11.89) (9.95) (7.09)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.47+ 1.56 1.94 2.10 2.22 2.78
Expenses after expense reductions## 1.15+ 1.15 1.15 1.15 1.16 1.19
Net investment income 1.24+ 0.53 0.63 0.54 0.44 0.78
Portfolio turnover 20 40 48 148 71 101
Net assets at end of period (000 Omitted) $32,798 $31,983 $18,212 $7,364 $5,623 $4,669
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ---------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $13.00 $10.99 $8.57 $9.72 $10.79 $11.69
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.17 $0.11 $0.13 $0.01 $0.06 $0.05
Net realized and unrealized gain (loss) on
investments and foreign currency (0.65) 1.90 2.29 (1.14) (1.11) (0.75)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.48) $2.01 $2.42 $(1.13) $(1.05) $(0.70)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.04) $-- $-- $(0.02) $(0.01) $(0.04)
From net realized gain on investments and
foreign currency transactions (0.22) -- -- -- (0.01) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.26) $-- $-- $(0.02) $(0.02) $(0.10)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.26 $13.00 $10.99 $8.57 $9.72 $10.79
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&** (3.68)++ 18.29 28.24 (11.65) (9.76) (6.03)++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.73+ 0.60### 1.44### 2.35 2.42 2.96+
Expenses after expense reductions## 1.40+ 0.19### 0.65### 1.40 1.36 1.37+
Net investment income 1.33+ 0.81 1.41 0.15 0.59 0.75+
Portfolio turnover 20 40 48 148 71 101
Net assets at end of period $49,603 $27 $22 $148 $168 $187
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of the Service Class shares, May 1, 2000, through December 31, 2000.
** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### Expense ratio is not in correlation with the contractual fee arrangement due to the small size of Service Class assets.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
(+) 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.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Global Equity Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. The shareholders of each series
of the trust are separate accounts of insurance companies, which offer variable
annuity and/or life insurance products. As of June 30, 2005, there were 13
shareholders.
(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 revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official closing
price as reported by an independent pricing service on the primary market or
exchange on which they are primarily traded, or at the last quoted bid price
for securities in which there were no sales during the day. Equity securities
traded over the counter are valued at the last sales price traded each day as
reported by an independent pricing service, or to the extent there are no sales
reported, such securities are valued on the basis of quotations obtained from
brokers and dealers. Short-term obligations with a remaining maturity in excess
of 60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the series' portfolio are valued at amortized cost, which
approximates market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. When
pricing service information or market quotations are not readily available,
securities are priced at fair value as determined under the direction of the
Board of Trustees. For example, significant events (such as movement in the
U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the series calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, the series may utilize information from an
external vendor or other sources to adjust closing market quotations of foreign
equity securities to reflect what it believes to be the fair value of the
securities as of the series' valuation time. Because the frequency of
significant events is not predictable, fair valuation of foreign equity
securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested in
a money market fund or short-term securities. A portion of the income generated
upon investment of the collateral is remitted to the Borrowers, and the
remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on 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. At June
30, 2005, the value of securities loaned was $5,311,822. These loans were
collateralized by cash of $5,567,106 and non-cash U.S. Treasury obligations of
$15,402.
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. All discount is
accreted for tax reporting purposes as required by federal tax regulations.
Dividends received in cash are recorded on the ex-dividend date. Dividend and
interest payments received in additional securities are recorded on the ex-
dividend or ex-interest date in an amount equal to the value of the security on
such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $492 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of
the series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $153 under this agreement. These amounts are shown as
a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions and wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from
ordinary income $71,238 $5,842
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $117,885
Undistributed long-term capital gain 598,621
Unrealized appreciation (depreciation) 5,649,608
Other temporary differences (1,754)
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.00%
of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.15% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
DISTRIBUTOR - MFS Fund Distributions, Inc. (MFD), a wholly owned subsidiary of
MFS, is the distributor of shares of the series. The Trustees have adopted a
distribution plan for the Service Class shares pursuant to Rule 12b-1 of the
Investment Company Act of 1940.
The series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified retirement
and pension plans that invest in the series, and affiliates of these
participating insurance companies and plan sponsors) in connection with the
sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary
of MFS. MFSC receives a fee from the series, for its services as shareholder
servicing agent. For the six months ended June 30, 2005, the fee was $5,828,
which equated to 0.035% annually of the series' average daily net assets. MFSC
also receives payment from the series for out-of-pocket expenses paid by MFSC
on behalf of the series. For the six months ended June 30, 2005, these costs
amounted to $98.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets.
The administrative services fee incurred for the six months ended June 30, 2005
was equivalent to an annual effective rate of 0.01429% of the series' average
daily net assets.
TRUSTEES COMPENSATION - The series pays compensation to its Independent
Trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons, and pays no compensation
directly to Trustees who are officers of the investment adviser, or to officers
of the series, all of whom receive remuneration for their services to the
series from MFS. Certain officers and Trustees of the series are officers or
directors of MFS, MFD, and MFSC.
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to Tarantino
LLC in the amount of $77, which is shown as a reduction of total expenses in
the Statement of Operations. Additionally, MFS has agreed to bear all expenses
associated with office space, other administrative support, and supplies
provided to the ICCO. The funds can terminate the Agreement with Tarantino LLC
at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$10,659,065 and $6,361,105, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $36,007,395
----------------------------------------------------
Gross unrealized appreciation $4,182,840
Gross unrealized depreciation (611,317)
----------------------------------------------------
Net unrealized appreciation $3,571,523
----------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 462,144 $5,821,343 1,043,575 $11,951,565
Shares issued to shareholders in reinvestment of
distributions 59,625 718,481 6,372 71,238
Shares reacquired (334,626) (4,153,951) (228,069) (2,630,927)
- ----------------------------------------------------------------------------------------------------------------------------
Net change 187,143 $2,385,873 821,878 $9,391,876
SERVICE CLASS SHARES*
Shares sold 25,855 $322,022 -- $--
Shares issued to shareholders in reinvestment of
distributions 1** 5 -- --
Shares reacquired (21,811) (275,259) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net change 4,045 $46,768 -- $--
* For the year ended December 31, 2004, the series had no Service Class share activity.
** Shares are rounded for presentation purposes.
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $123, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At the special meeting of shareholders of MFS Global Equity Series, which was
held on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VGE-SEM 8/05 52M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) VALUE SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) VALUE SERIES
Objective: Seeks capital appreciation and reasonable income.
TABLE OF CONTENTS
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LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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EXPENSE TABLE 3
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PORTFOLIO OF INVESTMENTS 4
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FINANCIAL STATEMENTS 8
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NOTES TO FINANCIAL STATEMENTS 13
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RESULTS OF SHAREHOLDER MEETING 17
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PROXY VOTING POLICIES AND INFORMATION 17
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QUARTERLY PORTFOLIO DISCLOSURE 17
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CONTACT INFORMATION BACK COVER
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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.
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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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 98.7%
Cash & Other Net Assets 1.3%
TOP TEN HOLDINGS
Bank of America Corp. 3.8%
------------------------------------------------
Citigroup, Inc. 3.4%
------------------------------------------------
Altria Group, Inc. 3.1%
------------------------------------------------
ConocoPhillips 2.9%
------------------------------------------------
Sprint Corp. 2.7%
------------------------------------------------
Goldman Sachs Group, Inc. 2.6%
------------------------------------------------
MetLife, Inc. 2.6%
------------------------------------------------
Allstate Corp. 2.4%
------------------------------------------------
Dominion Resources, Inc. 2.2%
------------------------------------------------
TOTAL S.A. 2.2%
------------------------------------------------
SECTOR WEIGHTINGS
Financial Services 28.6%
------------------------------------------------
Energy 12.3%
------------------------------------------------
Utilities & Communications 10.4%
------------------------------------------------
Consumer Staples 9.9%
------------------------------------------------
Industrial Goods & Services 9.9%
------------------------------------------------
Basic Materials 7.8%
------------------------------------------------
Health Care 6.9%
------------------------------------------------
Leisure 4.4%
------------------------------------------------
Retailing 2.7%
------------------------------------------------
Technology 1.8%
------------------------------------------------
Special Products & Services 1.5%
------------------------------------------------
Autos & Housing 1.4%
------------------------------------------------
Transportation 1.1%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $1,012.90 $4.49
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.90% $1,000.00 $1,020.33 $4.51
- -------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,011.60 $5.74
Service -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.09 $5.76
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your portfolio.
It is categorized by broad-based asset classes.
Stocks - 98.7%
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ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 48,760 $ 3,163,061
Northrop Grumman Corp.* 49,400 2,729,350
United Technologies Corp. 41,540 2,133,079
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$ 8,025,490
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Alcoholic Beverages - 0.5%
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Diageo PLC 55,020 $ 808,393
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Banks & Credit Companies - 16.0%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 30,947 $ 1,647,309
Bank of America Corp. 139,748 6,373,906
Citigroup, Inc. 123,130 5,692,300
Fannie Mae 50,064 2,923,738
Freddie Mac 13,840 902,783
J.P. Morgan Chase & Co. 17,025 601,323
MBNA Corp. 34,150 893,364
PNC Financial Services Group, Inc. 39,080 2,128,297
SunTrust Banks, Inc. 50,353 3,637,501
Wells Fargo & Co. 24,530 1,510,557
- -----------------------------------------------------------------------------------------------------------------------
$ 26,311,078
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Time Warner, Inc.* 35,220 $ 588,525
Viacom, Inc., "B" 62,669 2,006,661
Walt Disney Co. 29,870 752,127
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$ 3,347,313
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Brokerage & Asset Managers - 5.3%
- -----------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 9,240 $ 711,295
Goldman Sachs Group, Inc. 42,822 4,368,700
Lehman Brothers Holdings, Inc. 10,070 999,750
Mellon Financial Corp. 49,821 1,429,364
Merrill Lynch & Co., Inc. 21,895 1,204,444
- -----------------------------------------------------------------------------------------------------------------------
$ 8,713,553
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 108,920 $ 2,469,216
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 4.6%
- -----------------------------------------------------------------------------------------------------------------------
Dow Chemical Co. 35,300 $ 1,571,909
E.I. du Pont de Nemours & Co. 40,740 1,752,227
Nalco Holding Co.* 22,730 446,190
PPG Industries, Inc. 38,756 2,432,327
Syngenta AG 13,494 1,380,255
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$ 7,582,908
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Computer Software - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Oracle Corp.* 46,840 $ 618,288
Symantec Corp.* 38,570 838,512
- -----------------------------------------------------------------------------------------------------------------------
$ 1,456,800
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 24,350 $ 572,469
International Business Machines Corp. 3,400 252,280
- -----------------------------------------------------------------------------------------------------------------------
$ 824,749
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.4%
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Masco Corp. 72,400 $ 2,299,424
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Consumer Goods & Services - 1.4%
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Kimberly-Clark Corp. 36,248 $ 2,268,762
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Containers - 0.2%
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Smurfit-Stone Container Corp.* 35,900 $ 365,103
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Electrical Equipment - 1.9%
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Cooper Industries Ltd., "A" 15,880 $ 1,014,732
Emerson Electric Co. 20,580 1,288,925
Tyco International Ltd.* 12,140 354,488
W.W. Grainger, Inc. 9,040 495,302
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$ 3,153,447
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Electronics - 0.4%
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Analog Devices, Inc. 18,860 $ 703,667
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Energy - Independent - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Devon Energy Corp. 19,210 $ 973,563
EOG Resources, Inc. 23,720 1,347,296
Unocal Corp. 43,273 2,814,909
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$ 5,135,768
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Energy - Integrated - 8.5%
- -----------------------------------------------------------------------------------------------------------------------
BP PLC, ADR 34,611 $ 2,159,034
ConocoPhillips 82,770 4,758,447
Exxon Mobil Corp. 58,228 3,346,363
TOTAL S.A., ADR 31,151 3,639,994
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$ 13,903,838
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co. 70,914 $ 1,516,141
H.J. Heinz Co. 35,100 1,243,242
Kellogg Co. 56,020 2,489,529
Nestle S.A 3,200 816,682
PepsiCo, Inc. 19,068 1,028,337
Sara Lee Corp. 47,450 939,985
- -----------------------------------------------------------------------------------------------------------------------
$ 8,033,916
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Forest & Paper Products - 1.2%
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Bowater, Inc. 9,770 $ 316,255
International Paper Co. 56,499 1,706,835
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$ 2,023,090
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Insurance - 7.3%
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AFLAC, Inc. 24,430 $ 1,057,330
Allstate Corp. 66,885 3,996,379
Chubb Corp. 10,515 900,189
Hartford Financial Services Group, Inc. 21,453 1,604,255
MetLife, Inc. 96,503 4,336,845
- -----------------------------------------------------------------------------------------------------------------------
$ 11,894,998
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Leisure & Toys - 0.4%
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Hasbro, Inc. 32,930 $ 684,615
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Machinery & Tools - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Deere & Co. 45,149 $ 2,956,808
Finning International, Inc. 6,230 183,504
Illinois Tool Works, Inc. 18,160 1,446,989
Sandvik AB 12,440 460,160
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$ 5,047,461
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Medical Equipment - 0.6%
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Baxter International, Inc. 24,180 $ 897,078
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Oil Services - 0.7%
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Noble Corp. 19,387 $ 1,192,494
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Pharmaceuticals - 6.3%
- -----------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 41,770 $ 2,047,148
Eli Lilly & Co. 4,650 259,052
Johnson & Johnson 43,740 2,843,100
Merck & Co., Inc. 68,960 2,123,968
Novartis AG 10,390 492,820
Pfizer, Inc. 14,379 396,573
Roche Holding AG 5,340 672,506
Wyeth 34,840 1,550,380
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$ 10,385,547
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Printing & Publishing - 1.3%
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Reed Elsevier PLC 138,768 $ 1,324,724
Tribune Co. 24,840 873,871
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$ 2,198,595
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Railroad & Shipping - 0.9%
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Burlington Northern Santa Fe Corp. 31,870 $ 1,500,440
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Restaurants - 0.6%
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McDonald's Corp. 34,190 $ 948,773
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Specialty Chemicals - 1.8%
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Air Liquide S.A 2,360 $ 400,772
Air Products & Chemicals, Inc. 33,396 2,013,779
Praxair, Inc. 11,256 524,530
- -----------------------------------------------------------------------------------------------------------------------
$ 2,939,081
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Specialty Stores - 2.7%
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Gap, Inc. 96,790 $ 1,911,603
Lowe's Cos., Inc. 18,340 1,067,755
TJX Cos., Inc. 57,060 1,389,411
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$ 4,368,769
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Telecommunications - Wireless - 1.3%
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Vodafone Group PLC 870,100 $ 2,114,023
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Telephone Services - 4.3%
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Sprint Corp. 176,200 $ 4,420,858
Verizon Communications, Inc. 76,020 2,626,491
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$ 7,047,349
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Tobacco - 3.1%
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Altria Group, Inc. 79,111 $ 5,115,317
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 0.2%
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CNF, Inc. 7,520 $ 337,648
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Utilities - Electric Power - 4.8%
- -----------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc. 50,270 $ 3,689,315
Entergy Corp. 9,700 732,835
Exelon Corp. 11,410 585,675
FPL Group, Inc. 7,390 310,823
PPL Corp. 15,110 897,232
Public Service Enterprise Group, Inc. 12,590 765,724
TXU Corp. 10,370 861,643
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$ 7,843,247
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Total Stocks (Identified Cost, $148,202,679) $161,941,950
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Short-Term Obligation - 3.2%
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ISSUER PAR AMOUNT $ VALUE
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New Center Asset Trust, 3.4%, due 7/01/05, at Amortized Cost and Value< $ 5,211,000 $ 5,211,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $153,413,679)(+) $167,152,950
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Other Assets, Less Liabilities - (1.9)% (3,099,191)
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Net Assets - 100.0% $164,053,759
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(+) As of June 30, 2005, the fund had nine securities representing $8,470,335 and 5.2% of net assets that were
fair valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
< The rate shown represents an annualized yield at time of purchase.
The following abbreviation is used in the Portfolio of Investments and is defined:
ADR = American Depository Receipts
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $153,413,679) $167,152,950
Cash 833
Receivable for investments sold 186,425
Receivable for series shares sold 460,228
Interest and dividends receivable 275,423
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $168,075,859
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable to investment adviser $10,338
Payable for investments purchased 2,187,442
Payable for series shares reacquired 1,771,833
Payable to affiliates
Management fee 3,430
Shareholder servicing costs 300
Distribution fees 377
Accrued expenses and other liabilities 48,380
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Total liabilities $4,022,100
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Net assets $164,053,759
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NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $146,971,745
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 13,738,113
Accumulated undistributed net realized gain (loss) on investments and foreign
currency transactions 2,370,954
Accumulated undistributed net investment income 972,947
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Net assets $164,053,759
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 13,817,709
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $111,305,374 / 9,360,498 shares of beneficial interest outstanding) $11.89
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $52,748,385 / 4,457,211 shares of beneficial interest outstanding) $11.83
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
FOR SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $1,629,126
Interest 51,142
Foreign taxes withheld (26,861)
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Total investment income $1,653,407
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $521,348
Distribution fees 54,812
Shareholder servicing costs 24,753
Administrative services fee 9,895
Trustees' compensation 2,728
Custodian fee 33,820
Printing 12,838
Postage 5,947
Auditing fees 22,798
Legal fees 2,564
Shareholder solicitation expenses 2,830
Miscellaneous 5,032
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Total expenses $699,365
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Fees paid indirectly (2,818)
Reduction of expenses by investment adviser (17,139)
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Net expenses $679,408
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Net investment income $973,999
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $2,461,042
Foreign currency transactions (3,469)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $2,457,573
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(1,663,026)
Translation of assets and liabilities in foreign currencies (2,329)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(1,665,355)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $792,218
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,766,217
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SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $973,999 $1,122,193
Net realized gain (loss) on investments and foreign currency transactions 2,457,573 3,569,990
Net unrealized gain (loss) on investments and foreign currency translation (1,665,355) 8,830,035
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $1,766,217 $13,522,218
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(788,364) $(265,442)
Service Class (330,322) (99,483)
From net realized gain on investments and foreign currency transactions
Initial Class (2,348,350) (787,507)
Service Class (1,171,569) (361,842)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(4,638,605) $(1,514,274)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $47,721,968 $52,078,381
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $44,849,580 $64,086,325
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 119,204,179 55,117,854
At end of period (including accumulated undistributed net investment income of
$972,947 and $1,117,634, respectively) $164,053,759 $119,204,179
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED --------------------------------------
6/30/05 2004 2003 2002*
(UNAUDITED)
Net asset value, beginning of period $12.13 $10.76 $8.63 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------
Net investment income $0.09 $0.16 $0.14 $0.16
Net realized and unrealized gain (loss) on investments and foreign
currency 0.06 1.44 2.01 (1.53)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.15 $1.60 $2.15 $(1.37)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.10) $(0.06) $(0.02) $--
From net realized gain on investments and foreign currency
transactions (0.29) (0.17) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.39) $(0.23) $(0.02) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.89 $12.13 $10.76 $8.63
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& 1.29++ 15.18 24.96 (13.70)++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.92+ 0.93 1.18 2.94+
Expenses after expense reductions## 0.90+ 0.90 0.90 0.90+
Net investment income 1.48+ 1.44 1.45 1.89+
Portfolio turnover 8 34 48 102
Net assets at end of period (000 Omitted) $111,305 $83,704 $36,981 $5,497
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED --------------------------------------
6/30/05 2004 2003 2002*
(UNAUDITED)
Net asset value, beginning of period $12.07 $10.73 $8.62 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.07 $0.13 $0.11 $0.12
Net realized and unrealized gain (loss) on investments and foreign
currency 0.06 1.43 2.02 (1.50)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.13 $1.56 $2.13 $(1.38)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.08) $(0.05) $(0.02) $--
From net realized gain on investments and foreign currency
transactions (0.29) (0.17) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.37) $(0.22) $(0.02) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.83 $12.07 $10.73 $8.62
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)***(+)& 1.16++ 14.82 24.71 (13.80)++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.17+ 1.18 1.43 3.19+
Expenses after expense reductions## 1.15+ 1.15 1.15 1.15+
Net investment income 1.24+ 1.19 1.22 1.44+
Portfolio turnover 8 34 48 102
Net assets at end of period (000 Omitted) $52,748 $35,500 $18,137 $3,735
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations, January 2, 2002, through
December 31, 2002.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
*** Certain expenses have been reduced without which performance would have been lower.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Value Series (the series) is a diversified series of MFS Variable Insurance
Trust (the trust). The trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The shareholders of each series of the
trust are separate accounts of insurance companies, which offer variable annuity
and/or life insurance products. As of June 30, 2005, there were 32 shareholders.
(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 revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official closing
price as reported by an independent pricing service on the primary market or
exchange on which they are primarily traded, or at the last quoted bid price for
securities in which there were no sales during the day. Equity securities traded
over the counter are valued at the last sales price traded each day as reported
by an independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers and
dealers. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer-supplied valuations. All other short-term obligations
in the series' portfolio are valued at amortized cost, which approximates market
value as determined by the Board of Trustees. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are converted
each business day into U.S. dollars based upon current exchange rates. When
pricing service information or market quotations are not readily available,
securities are priced at fair value as determined under the direction of the
Board of Trustees. For example, significant events (such as movement in the U.S.
securities market, or other regional and local developments) may occur between
the time that foreign markets close (where the security is principally traded)
and the time that the series calculates its net asset value (generally, the
close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, the series may utilize information from an
external vendor or other sources to adjust closing market quotations of foreign
equity securities to reflect what it believes to be the fair value of the
securities as of the series' valuation time. Because the frequency of
significant events is not predictable, fair valuation of foreign equity
securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
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. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $2,066 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $752 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions and wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $1,451,246 $34,772
Long-term capital gain 63,028 --
- --------------------------------------------------------------------------------
Total distributions declared $1,514,274 $34,772
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $2,474,519
Undistributed long-term capital gain 2,161,978
Unrealized appreciation (depreciation) 15,317,905
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. Differences in per share dividend rates are generally
due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.15% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the six months
ended June 30, 2005, the fee was $24,284, which equated to 0.035% annually of
the series' average daily net assets. MFSC also receives payment from the series
for out-of-pocket expenses paid by MFSC on behalf of the series. For the six
months ended June 30, 2005, these costs amounted to $418.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets.
The administrative services fee incurred for the six months ended June 30, 2005
was equivalent to an annual effective rate of 0.0143% of the series' average
daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The series does not pay compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $320, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$56,474,095 and $11,245,228, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $153,499,242
--------------------------------------------------------
Gross unrealized appreciation $16,971,422
Gross unrealized depreciation (3,317,714)
--------------------------------------------------------
Net unrealized appreciation (depreciation) $13,653,708
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 2,401,032 $28,900,377 3,837,329 $42,453,479
Shares issued to shareholders in reinvestment
of distributions 272,522 3,136,714 98,131 1,052,949
Shares reacquired (212,824) (2,556,917) (471,759) (5,232,453)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 2,460,730 $29,480,174 3,463,701 $38,273,975
SERVICE CLASS SHARES
Shares sold 1,698,083 $20,446,823 1,539,908 $16,986,012
Shares issued to shareholders in reinvestment
of distributions 131,055 1,501,891 43,155 461,325
Shares reacquired (312,108) (3,706,920) (333,474) (3,642,931)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 1,517,030 $18,241,794 1,249,589 $13,804,406
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $545, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Value Series, which was held on
March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
--------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- ------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- ------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- ------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- ------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- ------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- ------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- ------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- ------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- ------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- ------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- ------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the series'
Investment Advisory Agreement with MFS will be available on or before November
23, 2005 by clicking on "Variable Insurance Trust" in the "Products and
Performance" section of the MFS website (MFS.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's website at
http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is available
without charge by visiting the Proxy Voting section of mfs.com or by visiting
the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VLU-SEM 8/05 3M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) EMERGING GROWTH SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) EMERGING GROWTH SERIES
Objective: Seeks long-term growth of capital.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 9
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 14
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 18
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 18
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 18
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 97.0%
Cash & Other Net Assets 2.8%
Preferred Stocks 0.2%
TOP TEN HOLDINGS
American Tower Corp. 2.3%
------------------------------------------------
Getty Images, Inc. 2.3%
------------------------------------------------
Cytyc Corp. 2.2%
------------------------------------------------
Google, Inc. 2.1%
------------------------------------------------
Legg Mason, Inc. 2.0%
------------------------------------------------
Dell, Inc. 1.8%
------------------------------------------------
Electronic Arts, Inc. 1.7%
------------------------------------------------
Allergan, Inc. 1.6%
------------------------------------------------
Yahoo!, Inc. 1.6%
------------------------------------------------
Sprint Corp. 1.6%
------------------------------------------------
SECTOR WEIGHTINGS
Technology 26.8%
------------------------------------------------
Health Care 23.5%
------------------------------------------------
Leisure 8.9%
------------------------------------------------
Special Products & Services 7.4%
------------------------------------------------
Retailing 7.4%
------------------------------------------------
Financial Services 6.9%
------------------------------------------------
Utilities & Communications 5.2%
------------------------------------------------
Energy 3.9%
------------------------------------------------
Consumer Staples 2.7%
------------------------------------------------
Autos & Housing 1.6%
------------------------------------------------
Industrial Goods & Services 1.7%
------------------------------------------------
Basic Materials 1.0%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing in
the series 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, January 1, 2005 through June 30, 2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the series'
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the series
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 series) 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 series
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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.86% $1,000.00 $984.00 $4.23
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.86% $1,000.00 $1,020.53 $4.31
- -------------------------------------------------------------------------------
Actual 1.11% $1,000.00 982.70 $5.46
Service -----------------------------------------------------------------------
Class Hypothetical* 1.11% $1,000.00 $1,019.29 $5.56
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 97.0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
ITT Industries, Inc. 39,300 $ 3,836,859
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Companhia de Bebidas das Americas, ADR^ 13,114 $ 333,882
Diageo PLC 125,530 1,844,375
- -----------------------------------------------------------------------------------------------------------------------
$ 2,178,257
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Columbia Sportswear Co.*^ 34,070 $ 1,682,717
Nike, Inc., "B" 55,930 4,843,538
- -----------------------------------------------------------------------------------------------------------------------
$ 6,526,255
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 137,390 $ 7,313,270
SLM Corp. 155,590 7,903,972
- -----------------------------------------------------------------------------------------------------------------------
$ 15,217,242
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 5.8%
- -----------------------------------------------------------------------------------------------------------------------
Amgen, Inc.* 146,930 $ 8,883,388
Gen-Probe, Inc.* 58,310 2,112,571
Genzyme Corp.* 191,840 11,527,666
Gilead Sciences, Inc.* 220,670 9,707,273
ImClone Systems, Inc.*^ 92,470 2,863,796
MedImmune, Inc.* 237,030 6,333,442
Neurochem, Inc.* 36,620 368,031
Neurocrine Biosciences, Inc.*^ 81,230 3,416,534
- -----------------------------------------------------------------------------------------------------------------------
$ 45,212,701
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.5%
- -----------------------------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 131,840 $ 8,185,945
NTL, Inc.* 65,640 4,491,089
Telewest Global, Inc.* 207,810 4,733,912
Univision Communications, Inc., "A"*^ 74,120 2,042,006
- -----------------------------------------------------------------------------------------------------------------------
$ 19,452,952
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 4.9%
- -----------------------------------------------------------------------------------------------------------------------
Chicago Mercantile Exchange Holdings, Inc.^ 36,260 $ 10,714,830
Goldman Sachs Group, Inc. 60,330 6,154,867
Legg Mason, Inc. 146,620 15,264,608
Lehman Brothers Holdings, Inc. 59,820 5,938,930
- -----------------------------------------------------------------------------------------------------------------------
$ 38,073,235
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 5.4%
- -----------------------------------------------------------------------------------------------------------------------
Alliance Data Systems Corp.*^ 170,180 $ 6,902,501
Corporate Executive Board Co.^ 52,330 4,099,009
DST Systems, Inc.* 192,730 9,019,764
Getty Images, Inc.*^ 235,790 17,509,765
Hewitt Associates, Inc., "A"*^ 164,310 4,355,858
- -----------------------------------------------------------------------------------------------------------------------
$ 41,886,897
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Monsanto Co. 61,040 $ 3,837,585
Nalco Holding Co.* 120,580 2,366,985
- -----------------------------------------------------------------------------------------------------------------------
$ 6,204,570
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 6.5%
- -----------------------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 436,080 $ 11,525,594
Kronos, Inc.* 35,090 1,417,285
Mercury Interactive Corp.* 211,380 8,108,537
MicroStrategy, Inc., "A"*^ 39,680 2,104,627
Oracle Corp.* 888,520 11,728,464
Symantec Corp.* 244,670 5,319,126
VERITAS Software Corp.* 420,654 10,263,958
- -----------------------------------------------------------------------------------------------------------------------
$ 50,467,591
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Dell, Inc.* 362,770 $ 14,333,043
Infosys Technologies Ltd., ADR 63,390 4,910,823
LG.Philips LCD Co. Ltd., ADR*^ 128,430 2,935,910
- -----------------------------------------------------------------------------------------------------------------------
$ 22,179,776
- -----------------------------------------------------------------------------------------------------------------------
Construction - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Masco Corp. 103,210 $ 3,277,950
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"*^ 62,030 $ 4,851,986
Avon Products, Inc. 71,970 2,724,064
Career Education Corp.*^ 190,500 6,974,205
Gillette Co. 77,650 3,931,419
Strayer Education, Inc. 35,860 3,093,284
- -----------------------------------------------------------------------------------------------------------------------
$ 21,574,958
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Tyco International Ltd. 103,480 $ 3,021,616
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 6.8%
- -----------------------------------------------------------------------------------------------------------------------
Analog Devices, Inc. 241,670 $ 9,016,708
AU Optronics Corp., ADR^ 183,000 3,100,020
FormFactor, Inc.*^ 90,870 2,400,785
KLA-Tencor Corp. 102,200 4,466,140
Marvell Technology Group Ltd.* 158,040 6,011,842
PMC-Sierra, Inc.*^ 351,530 3,279,775
Samsung Electronics Co. Ltd., GDR 36,110 8,639,318
Silicon Laboratories, Inc.*^ 136,910 3,588,411
Texas Instruments, Inc. 112,290 3,151,980
Xilinx, Inc. 362,310 9,238,905
- -----------------------------------------------------------------------------------------------------------------------
$ 52,893,884
- -----------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
CVS Corp. 200,160 $ 5,818,651
Walgreen Co. 149,040 6,854,350
- -----------------------------------------------------------------------------------------------------------------------
$ 12,673,001
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Cadbury Schweppes PLC 361,970 $ 3,445,349
PepsiCo, Inc.^ 146,830 7,918,542
- -----------------------------------------------------------------------------------------------------------------------
$ 11,363,891
- -----------------------------------------------------------------------------------------------------------------------
Furniture & Appliances - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 90,930 $ 7,398,065
Tempur-Pedic International, Inc.* 97,800 2,169,204
- -----------------------------------------------------------------------------------------------------------------------
$ 9,567,269
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
Carnival Corp.^ 185,090 $ 10,096,660
Four Seasons Hotels, Inc.^ 43,600 2,881,960
Hilton Group PLC 152,480 778,813
Hilton Hotels Corp. 80,700 1,924,695
WMS Industries, Inc.*^ 84,490 2,851,538
- -----------------------------------------------------------------------------------------------------------------------
$ 18,533,666
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 3.9%
- -----------------------------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 244,450 $ 6,380,145
Kohl's Corp.* 202,390 11,315,625
Target Corp. 172,710 9,397,151
Wal-Mart de Mexico S.A. de C.V 813,160 3,296,717
- -----------------------------------------------------------------------------------------------------------------------
$ 30,389,638
- -----------------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
WellPoint, Inc.* 95,070 $ 6,620,675
- -----------------------------------------------------------------------------------------------------------------------
Internet - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
eBay, Inc.*^ 73,380 $ 2,422,274
Google, Inc., "A"* 54,580 16,054,707
Yahoo!, Inc.* 358,220 12,412,323
- -----------------------------------------------------------------------------------------------------------------------
$ 30,889,304
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Activision, Inc.* 213,020 $ 3,519,091
Electronic Arts, Inc.* 227,130 12,857,829
Marvel Enterprises, Inc.^ 37,650 742,458
- -----------------------------------------------------------------------------------------------------------------------
$ 17,119,378
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Illinois Tool Works, Inc.^ 77,260 $ 6,156,077
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Community Health Systems, Inc.* 103,670 $ 3,917,689
HCA, Inc. 107,940 6,116,960
- -----------------------------------------------------------------------------------------------------------------------
$ 10,034,649
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 7.9%
- -----------------------------------------------------------------------------------------------------------------------
Alcon, Inc.^ 68,000 $ 7,435,800
Cytyc Corp.* 765,740 16,892,224
DENTSPLY International, Inc. 90,350 4,878,900
Fisher Scientific International, Inc.* 150,764 9,784,584
Millipore Corp.* 124,700 7,074,231
St. Jude Medical, Inc.* 158,860 6,927,885
Synthes, Inc. 20,080 2,197,462
Waters Corp.* 154,520 5,743,508
- -----------------------------------------------------------------------------------------------------------------------
$ 60,934,594
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR 61,640 $ 1,804,819
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 3.9%
- -----------------------------------------------------------------------------------------------------------------------
BJ Services Co. 185,480 $ 9,733,990
GlobalSantaFe Corp. 241,180 9,840,144
Halliburton Co. 91,240 4,363,097
Smith International, Inc.^ 101,050 6,436,885
- -----------------------------------------------------------------------------------------------------------------------
$ 30,374,116
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
EMC Corp.* 862,100 $ 11,819,391
Network Appliance, Inc.* 250,020 7,068,065
- -----------------------------------------------------------------------------------------------------------------------
$ 18,887,456
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.6%
- -----------------------------------------------------------------------------------------------------------------------
Allergan, Inc. 148,060 $ 12,620,634
Eli Lilly & Co. 56,870 3,168,228
Endo Pharmaceuticals Holdings, Inc.* 137,610 3,616,391
Johnson & Johnson 131,130 8,523,450
Medicis Pharmaceutical Corp., "A"^ 336,870 10,688,885
Roche Holding AG 76,010 9,572,508
Teva Pharmaceutical Industries Ltd., ADR^ 179,630 5,593,678
Wyeth 106,930 4,758,385
- -----------------------------------------------------------------------------------------------------------------------
$ 58,542,159
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Playboy Enterprises, Inc.,"B"*^ 112,480 $ 1,455,491
Washington Post Co., "B" 3,750 3,131,363
- -----------------------------------------------------------------------------------------------------------------------
$ 4,586,854
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Brinker International, Inc.* 75,380 $ 3,018,969
Cheesecake Factory, Inc.*^ 66,460 2,308,156
Outback Steakhouse, Inc.^ 85,550 3,870,282
- -----------------------------------------------------------------------------------------------------------------------
$ 9,197,407
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc.* 143,630 $ 6,000,861
Urban Outfitters, Inc.*^ 33,200 1,882,108
- -----------------------------------------------------------------------------------------------------------------------
$ 7,882,969
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR, "L"^ 87,900 $ 5,239,719
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 4.3%
- -----------------------------------------------------------------------------------------------------------------------
AudioCodes Ltd.*^ 113,340 $ 1,127,733
Cisco Systems, Inc.* 545,388 10,422,365
Comverse Technology, Inc.* 227,670 5,384,395
Corning, Inc.* 257,720 4,283,306
Juniper Networks, Inc.* 150,606 3,792,259
NeuStar, Inc., "A"* 15,060 385,536
QUALCOMM, Inc. 229,360 7,571,174
- -----------------------------------------------------------------------------------------------------------------------
$ 32,966,768
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 4.5%
- -----------------------------------------------------------------------------------------------------------------------
American Tower Corp., "A"*^ 855,630 $ 17,985,343
SpectraSite, Inc.* 65,170 4,850,603
Sprint Corp. 486,370 12,203,023
- -----------------------------------------------------------------------------------------------------------------------
$ 35,038,969
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $685,384,199) $750,808,121
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Companhia de Bebidas das Americas, ADR^ 65,570 $ 2,026,113
- -----------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $1,627,650) $ 2,026,113
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $16,880,000 $ 16,880,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 13.8%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 106,573,322 $106,573,322
- -----------------------------------------------------------------------------------------------------------------------
Total Investments(+) (Identified Cost, $810,465,171) $876,287,556
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (13.2)% (102,144,700)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $774,142,856
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
< The rate shown represents an annualized yield at time of purchase.
(+) As of June 30, 2005, the series had five securities representing $17,838,507 and 2.3% of net assets that were fair
valued in accordance with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt
GDR = Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $104,051,751 of securities on loan
(identified cost, $810,465,171) $876,287,556
Cash 837
Receivable for investments sold 12,758,405
Receivable for series shares sold 42,642
Interest and dividends receivable 322,861
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $889,412,301
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $7,296,722
Payable for series shares reacquired 1,211,340
Collateral for securities loaned, at value 106,573,322
Payable to affiliates
Management fee 16,047
Shareholder servicing costs 1,015
Distribution fees 208
Administrative services fee 294
Accrued expenses and other liabilities 170,497
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $115,269,445
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $774,142,856
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $1,469,168,695
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 65,818,784
Accumulated net realized gain (loss) on investments and foreign currency
transactions (760,164,062)
Accumulated net investment loss (680,561)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $774,142,856
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 44,926,121
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $744,024,399 / 43,161,786 shares of beneficial interest
outstanding) $17.24
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $30,118,457 / 1,764,335 shares of beneficial interest outstanding) $17.07
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT LOSS
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $2,431,271
Interest 314,979
Foreign taxes withheld (67,116)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $2,679,134
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,943,332
Distribution fees 37,487
Shareholder servicing costs 138,045
Administrative services fee 55,407
Trustees' compensation 9,640
Custodian fee 143,819
Printing 6,946
Auditing fees 22,945
Legal fees 12,433
Miscellaneous 32,120
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $3,402,174
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (40,655)
Reduction of expenses by investment adviser (1,824)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $3,359,695
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(680,561)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $38,971,845
Foreign currency transactions 5,296
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $38,977,141
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(54,175,659)
Translation of assets and liabilities in foreign currencies (2,845)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(54,178,504)
Net realized and unrealized gain (loss) on investments and foreign currency $(15,201,363)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(15,881,924)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
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.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(680,561) $(1,520,215)
Net realized gain (loss) on investments and foreign currency transactions 38,977,141 70,854,636
Net unrealized gain (loss) on investments and foreign currency translation (54,178,504) 32,173,529
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(15,881,924) $101,507,950
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(71,380,714) $(117,590,916)
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(87,262,638) $(16,082,966)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period $861,405,494 $877,488,460
At end of period (including accumulated net investment loss of
$680,561 and $0, respectively) $774,142,856 $861,405,494
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ----------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $17.52 $15.51 $11.91 $17.98 $28.85 $37.94
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.01) $(0.03) $(0.03) $(0.04) $(0.03) $(0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency (0.27) 2.04 3.63 (6.03) (9.44) (7.07)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.28) $2.01 $3.60 $(6.07) $(9.47) $(7.08)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $-- $-- $-- $-- $(1.04) $(2.01)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.36) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $-- $-- $-- $-- $(1.40) $(2.01)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.24 $17.52 $15.51 $11.91 $17.98 $28.85
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (1.60)++*** 12.96+*** 30.23^ (33.76) (33.49) (19.61)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.86+ 0.87 0.87 0.86 0.87 0.85
Expenses after expense reductions## 0.86+ 0.87 0.87 0.86 0.87 0.85
Net investment loss (0.16)+ (0.17) (0.22) (0.24) (0.14) (0.04)
Portfolio turnover 40 99 103 111 231 200
Net assets at end of period (000 Omitted) $744,024 $830,410 $849,718 $757,499 $1,462,469 $2,312,406
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED --------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $17.37 $15.41 $11.86 $17.93 $28.83 $35.17
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss $(0.03) $(0.07) $(0.06) $(0.07) $(0.08) $0.00+++###
Net realized and unrealized gain (loss) on
investments and foreign currency (0.27) 2.03 3.61 (6.00) (9.42) (6.34)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.30) $1.96 $3.55 $(6.07) $(9.50) $(6.34)
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $-- $-- $-- $-- $(1.04) $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.36) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $-- $-- $-- $-- $(1.40) $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.07 $17.37 $15.41 $11.86 $17.93 $28.83
- --------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (1.73)++*** 12.72+*** 29.93^ (33.85) (33.62) 18.06++
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.11+ 1.12 1.12 1.09 1.07 1.05+
Expenses after expense reductions## 1.11+ 1.12 1.12 1.09 1.07 1.05+
Net investment income (loss) (0.41)+ (0.41) (0.47) (0.46) (0.40) 0.01+
Portfolio turnover 40 99 103 111 231 200
Net assets at end of period (000 Omitted) $30,118 $30,996 $27,771 $16,977 $23,303 $15,826
- --------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized loss for the period because of the
timing of sales of series shares and the amount of per share realized and unrealized gains and losses at such time.
* For the period from the inception of Service Class shares, May 1, 2000, through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
+ The series' net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection
with series sales. The non-recurring accrual resulted in an increase in the net asset value of $0.01 per
share based on the shares outstanding on the day the proceeds were recorded.
(+) 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.
^ The series' net asset value and total return calculation include proceeds received on March 26, 2003 for the partial
payment of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on investment
transactions. The proceeds resulted in an increase in the net asset value of $0.09 per share based on shares
outstanding on the day the proceeds were received. Excluding the effect of this payment from the ending net asset
value per share, the Initial Class and Service Class shares total returns for the year ended December 31, 2003 would
have each been lower by approximately 0.75%.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Emerging Growth Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The shareholders of each series of
the trust are separate accounts of insurance companies, which offer variable
annuity and/or life insurance products. As of June 30, 2005, there were 123
shareholders.
(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 revenues and expenses during the
reporting period. Actual results could differ from those estimates. The series
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official closing
price as reported by an independent pricing service on the primary market or
exchange on which they are primarily traded, or at the last quoted bid price for
securities in which there were no sales during the day. Equity securities traded
over the counter are valued at the last sales price traded each day as reported
by an independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers and
dealers. Short-term obligations with a remaining maturity in excess of 60 days
will be valued upon dealer-supplied valuations. All other short-term obligations
in the series' portfolio are valued at amortized cost, which approximates market
value as determined by the Board of Trustees. Money market mutual funds are
valued at net asset value. Investment valuations, other assets, and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. When pricing service information
or market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees. For example,
significant events (such as movement in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign markets
close (where the security is principally traded) and the time that the series
calculates its net asset value (generally, the close of the NYSE) that may
impact the value of securities traded in these foreign markets. In these cases,
the series may utilize information from an external vendor or other sources to
adjust closing market quotations of foreign equity securities to reflect what it
believes to be the fair value of the securities as of the series' valuation
time. Because the frequency of significant events is not predictable, fair
valuation of foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street") and J.P.
Morgan Chase and Co. ("Chase"), as lending agents, may loan the securities of
the series to certain qualified institutions (the "Borrowers") approved by the
series. The loans are collateralized at all times by cash and/or U.S. Treasury
securities in an amount at least equal to the market value of the securities
loaned. State Street and Chase provide the series with indemnification against
Borrower default. The series bears the risk of loss with respect to the
investment of cash collateral. On loans collateralized by cash, the cash
collateral is invested in a money market fund or short-term securities. A
portion of the income generated upon investment of the collateral is remitted to
the Borrowers, and the remainder is allocated between the series and the lending
agents. On loans collateralized by U.S. Treasury securities, a fee is received
from the Borrower, and is allocated between the series and the lending agents.
Income from securities lending is included in interest income on 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.
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. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $16,249 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $24,406 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, wash sales, and net operating
losses. The series paid no distributions for the years ended December 31, 2004
and December 31, 2003.
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(784,691,808)
Unrealized appreciation (depreciation) 105,547,893
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on December 31, 2009, $(380,813,821) and
December 31, 2010, $(403,877,987).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets of
each class, without distinction between share classes. Dividends are declared
separately for each class. Differences in per share dividend rates are generally
due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the six months
ended June 30, 2005, the fee was $137,356, which equated to 0.035% annually of
the series' average daily net assets. MFSC also receives payment from the series
for out-of-pocket expenses paid by MFSC on behalf of the series. For the six
months ended June 30, 2005, these costs amounted to $468.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets. The administrative services fee incurred for the
six months ended June 30, 2005 was equivalent to an annual effective rate of
0.01416% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The series does not pay compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $1,824, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales. On July 28, 2004, the series accrued an estimate of the amount
to be received pursuant to this matter in the amount of $745,251, which resulted
in an increase in net asset value of $0.01 per share based on the shares
outstanding on the day the proceeds were recorded. The proceeds were paid to the
series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$310,608,747 and $394,376,793, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $824,914,566
-------------------------------------------------------
Gross unrealized appreciation $76,638,276
Gross unrealized depreciation (25,265,286)
-------------------------------------------------------
Net unrealized appreciation (depreciation) $51,372,990
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 1,053,402 $17,712,776 3,048,337 $48,571,686
Shares reacquired (5,286,135) (88,803,752) (10,450,550) (165,907,451)
- -------------------------------------------------------------------------------------------------------------------------
Net change (4,232,733) $(71,090,976) (7,402,213) $(117,335,765)
SERVICE CLASS SHARES
Shares sold 318,790 $5,326,602 978,784 $15,463,022
Shares reacquired (338,637) (5,616,340) (996,320) (15,718,173)
- -------------------------------------------------------------------------------------------------------------------------
Net change (19,847) $(289,738) (17,536) $(255,151)
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $2,750, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Emerging Growth Series, which was
held on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
------------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- ------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- ------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- ------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- ------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- ------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- ------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- ------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- ------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- ------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- ------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- ------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VEG-SEM 8/05 150M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) TOTAL RETURN SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) TOTAL RETURN SERIES
Objective: Seeks mainly to provide above-average income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide reasonable opportunity for
growth of capital and income.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 22
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 26
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 26
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 26
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Stocks 59.3%
Bonds 39.0%
Cash & Other Net Assets 1.7%
TOP TEN HOLDINGS*
Fannie Mae, 30 yr. 5.5% 4.1%
------------------------------------------------
Sprint Corp. 2.2%
------------------------------------------------
Bank of America Corp. 2.0%
------------------------------------------------
U.S. Treasury Notes, 4.75%, 2008 1.8%
------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 1.7%
------------------------------------------------
Verizon Communications 1.5%
------------------------------------------------
Citigroup, Inc. 1.4%
------------------------------------------------
J.P. Morgan Chase & Co. 1.4%
------------------------------------------------
PNC Financial Services Group, Inc. 1.3%
------------------------------------------------
Wyeth 1.3%
------------------------------------------------
EQUITY SECTOR WEIGHTINGS
Financial Services 14.8%
------------------------------------------------
Energy 7.1%
------------------------------------------------
Utilities & Communications 7.0%
------------------------------------------------
Health Care 4.9%
------------------------------------------------
Industrial Goods & Services 4.8%
------------------------------------------------
Technology 4.3%
------------------------------------------------
Basic Materials 4.1%
------------------------------------------------
Consumer Staples 4.0%
------------------------------------------------
Leisure 3.9%
------------------------------------------------
Retailing 2.3%
------------------------------------------------
Autos & Housing 1.4%
------------------------------------------------
Special Products & Services 0.5%
------------------------------------------------
Transportation 0.2%
------------------------------------------------
TOP FIVE BOND MARKET SECTORS*
Mortgage-Backed Securities 13.8%
------------------------------------------------
U.S. Treasury Securities 9.6%
------------------------------------------------
High Grade Corporates 9.0%
------------------------------------------------
U.S. Government Agencies 4.1%
------------------------------------------------
Commercial Mortgage-Backed Securities 1.4%
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any derivative
holdings, if any.
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- --------------------------------------------------------------------------------
Actual 0.87% $1,000.00 $1,006.80 $4.33
Initial ------------------------------------------------------------------------
Class Hypothetical* 0.87% $1,000.00 $1,020.48 $4.36
- --------------------------------------------------------------------------------
Actual 1.12% $1,000.00 $1,006.00 $5.57
Service ------------------------------------------------------------------------
Class Hypothetical* 1.12% $1,000.00 $1,019.24 $5.61
- --------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 59.3%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 1.8%
- -----------------------------------------------------------------------------------------------------------------------
ITT Industries, Inc. 38,130 $ 3,722,632
Lockheed Martin Corp. 548,890 35,606,494
Northrop Grumman Corp. 199,540 11,024,585
United Technologies Corp. 160,090 8,220,622
- -----------------------------------------------------------------------------------------------------------------------
$ 58,574,333
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Diageo PLC 632,730 $ 9,296,514
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
SPX Corp. 173,480 $ 7,976,610
Toyota Motor Corp. 104,700 3,743,952
- -----------------------------------------------------------------------------------------------------------------------
$ 11,720,562
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 8.6%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 224,500 $ 11,950,135
Bank of America Corp. 1,480,368 67,519,584
Citigroup, Inc. 1,036,493 47,917,071
Countrywide Financial Corp. 151,070 5,832,813
Fannie Mae 201,870 11,789,208
Freddie Mac 171,755 11,203,579
J.P. Morgan Chase & Co. 1,310,918 46,301,624
MBNA Corp. 131,270 3,434,023
PNC Financial Services Group, Inc. 812,440 44,245,482
SunTrust Banks, Inc. 321,360 23,215,046
Wells Fargo & Co. 212,690 13,097,450
- -----------------------------------------------------------------------------------------------------------------------
$ 286,506,015
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Amgen, Inc.* 49,700 $ 3,004,862
MedImmune, Inc.* 438,800 11,724,736
- -----------------------------------------------------------------------------------------------------------------------
$ 14,729,598
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Interpublic Group of Cos., Inc.^* 1,450,100 $ 17,662,218
Time Warner, Inc.* 562,500 9,399,375
Viacom, Inc., "B" 1,292,741 41,393,567
Walt Disney Co. 914,160 23,018,549
- -----------------------------------------------------------------------------------------------------------------------
$ 91,473,709
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc.^ 105,030 $ 8,085,209
Goldman Sachs Group, Inc. 171,380 17,484,188
Lehman Brothers Holdings, Inc. 70,920 7,040,938
Mellon Financial Corp. 1,235,985 35,460,410
Merrill Lynch & Co., Inc. 501,670 27,596,867
Morgan Stanley 164,990 8,657,025
- -----------------------------------------------------------------------------------------------------------------------
$ 104,324,637
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A"^* 674,570 $ 15,292,502
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
3M Co. 67,220 $ 4,860,006
Dow Chemical Co. 307,390 13,688,077
E.I. du Pont de Nemours & Co. 168,130 7,231,271
Nalco Holding Co.* 377,880 7,417,784
PPG Industries, Inc. 232,840 14,613,038
Syngenta AG 52,410 5,360,839
- -----------------------------------------------------------------------------------------------------------------------
$ 53,171,015
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Compuware Corp.* 1,225,900 $ 8,814,221
Microsoft Corp. 488,180 12,126,391
Oracle Corp.* 575,910 7,602,012
Symantec Corp.* 1,612,740 35,060,968
- -----------------------------------------------------------------------------------------------------------------------
$ 63,603,592
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 99,510 $ 2,339,480
International Business Machines Corp. 12,700 942,340
Sun Microsystems, Inc.^* 5,039,250 18,796,403
- -----------------------------------------------------------------------------------------------------------------------
$ 22,078,223
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Masco Corp. 1,071,930 $ 34,044,497
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 126,320 $ 6,304,631
Gillette Co. 288,540 14,608,780
Kimberly-Clark Corp.^ 216,510 13,551,361
- -----------------------------------------------------------------------------------------------------------------------
$ 34,464,772
- -----------------------------------------------------------------------------------------------------------------------
Containers - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc.* 1,183,680 $ 29,651,184
Smurfit-Stone Container Corp.* 238,010 2,420,562
- -----------------------------------------------------------------------------------------------------------------------
$ 32,071,746
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 60,500 $ 3,865,950
Emerson Electric Co. 84,570 5,296,619
General Electric Co. 680,130 23,566,505
Hubbell, Inc., "B"^ 66,010 2,911,041
Tyco International Ltd. 953,980 27,856,216
W.W. Grainger, Inc. 35,970 1,970,796
- -----------------------------------------------------------------------------------------------------------------------
$ 65,467,127
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Analog Devices, Inc.^ 209,560 $ 7,818,684
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Apache Corp. 58,520 $ 3,780,392
Devon Energy Corp. 613,300 31,082,044
EnCana Corp. 185,000 7,324,150
EOG Resources, Inc.^ 150,690 8,559,192
Unocal Corp. 173,040 11,256,252
- -----------------------------------------------------------------------------------------------------------------------
$ 62,002,030
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp. 31,930 $ 3,400,864
BP PLC, ADR 228,264 14,239,108
ConocoPhillips 482,990 27,767,095
Exxon Mobil Corp. 558,732 32,110,328
Total S.A., ADR^ 228,840 26,739,954
- -----------------------------------------------------------------------------------------------------------------------
$ 104,257,349
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co.^ 310,580 $ 6,640,200
General Mills, Inc. 143,190 6,699,860
H.J. Heinz Co. 309,630 10,967,095
Kellogg Co.^ 218,860 9,726,138
Nestle S.A 12,251 3,126,618
PepsiCo, Inc. 193,320 10,425,748
Sara Lee Corp. 227,600 4,508,756
- -----------------------------------------------------------------------------------------------------------------------
$ 52,094,415
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Bowater, Inc.^ 420,310 $ 13,605,435
International Paper Co.^ 313,940 9,484,127
MeadWestvaco Corp. 163,500 4,584,540
- -----------------------------------------------------------------------------------------------------------------------
$ 27,674,102
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Cendant Corp. 417,640 $ 9,342,607
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 145,760 $ 3,804,336
Wal-Mart Stores, Inc. 319,700 15,409,540
- -----------------------------------------------------------------------------------------------------------------------
$ 19,213,876
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 3.1%
- -----------------------------------------------------------------------------------------------------------------------
AFLAC, Inc.^ 92,960 $ 4,023,309
Allstate Corp. 654,470 39,104,583
Chubb Corp.^ 40,810 3,493,744
Conseco, Inc.^* 772,440 16,854,641
Genworth Financial, Inc., "A" 177,740 5,373,080
Hartford Financial Services Group, Inc. 257,635 19,265,945
MetLife, Inc.^ 374,520 16,830,929
- -----------------------------------------------------------------------------------------------------------------------
$ 104,946,231
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Hasbro, Inc. 124,810 $ 2,594,800
Mattel, Inc.^ 528,890 9,678,687
- -----------------------------------------------------------------------------------------------------------------------
$ 12,273,487
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Deere & Co. 179,070 $ 11,727,294
Finning International, Inc. 280 8,247
Finning International, Inc.## 7,170 211,192
Illinois Tool Works, Inc.^ 142,800 11,378,304
Ingersoll-Rand Co. Ltd., "A" 41,430 2,956,031
Precision Castparts Corp. 72,480 5,646,192
Sandvik AB 46,170 1,707,846
- -----------------------------------------------------------------------------------------------------------------------
$ 33,635,106
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.^* 1,384,550 $ 16,946,892
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Baxter International, Inc. 92,660 $ 3,437,686
Boston Scientific Corp.* 97,240 2,625,480
- -----------------------------------------------------------------------------------------------------------------------
$ 6,063,166
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
BHP Billiton PLC 617,180 $ 7,915,283
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
AGL Resources, Inc.^ 138,990 $ 5,371,964
Sempra Energy 126,910 5,242,652
- -----------------------------------------------------------------------------------------------------------------------
$ 10,614,616
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
BJ Services Co.^ 155,045 $ 8,136,762
Cooper Cameron Corp.* 229,750 14,255,988
GlobalSantaFe Corp. 572,700 23,366,160
Noble Corp.^ 396,635 24,397,019
- -----------------------------------------------------------------------------------------------------------------------
$ 70,155,929
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 3.8%
- -----------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 585,460 $ 28,693,395
Eli Lilly & Co. 24,200 1,348,182
Johnson & Johnson 241,090 15,670,850
Merck & Co., Inc. 1,069,130 32,929,204
Novartis AG 40,860 1,938,079
Pfizer, Inc. 75,400 2,079,532
Roche Holding AG 20,800 2,619,500
Wyeth 961,880 42,803,660
- -----------------------------------------------------------------------------------------------------------------------
$ 128,082,402
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Reed Elsevier PLC 1,032,700 $ 9,858,487
Tribune Co.^ 112,130 3,944,733
- -----------------------------------------------------------------------------------------------------------------------
$ 13,803,220
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 135,450 $ 6,376,986
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
McDonald's Corp. 127,060 $ 3,525,915
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Air Liquide S.A 9,560 $ 1,623,465
Air Products & Chemicals, Inc.^ 209,070 12,606,921
Praxair, Inc. 43,260 2,015,916
- -----------------------------------------------------------------------------------------------------------------------
$ 16,246,302
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 410,400 $ 7,095,816
Gap, Inc. 1,289,910 25,475,723
Lowe's Cos., Inc.^ 71,290 4,150,504
OfficeMax, Inc.^ 354,530 10,554,358
TJX Cos., Inc. 427,730 10,415,226
- -----------------------------------------------------------------------------------------------------------------------
$ 57,691,627
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 716,605 $ 17,427,834
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 150,300 $ 2,872,233
Nokia Corp., ADR 1,359,010 22,613,926
Nortel Networks Corp.^* 9,857,890 25,729,093
- -----------------------------------------------------------------------------------------------------------------------
$ 51,215,252
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
SBC Communications, Inc.^ 378,924 $ 8,999,445
Sprint Corp. 2,926,600 73,428,394
Verizon Communications, Inc. 1,483,557 51,256,894
- -----------------------------------------------------------------------------------------------------------------------
$ 133,684,733
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 549,410 $ 35,524,851
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 0%
- -----------------------------------------------------------------------------------------------------------------------
CNF, Inc. 28,840 $ 1,294,916
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Calpine Corp.* 4,057,310 $ 13,794,854
Dominion Resources, Inc. 261,310 19,177,541
Entergy Corp. 186,730 14,107,452
Exelon Corp. 157,680 8,093,714
FPL Group, Inc. 27,020 1,136,461
PPL Corp.^ 162,160 9,629,061
Public Service Enterprise Group, Inc.^ 46,760 2,843,943
TXU Corp. 43,220 3,591,150
- -----------------------------------------------------------------------------------------------------------------------
$ 72,374,176
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,786,001,170) $1,979,020,829
- -----------------------------------------------------------------------------------------------------------------------
Bonds - 38.6%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
News America Holdings, 8.5%, 2025 $ 1,450,000 $ 1,839,893
News America, Inc., 6.2%, 2034 2,604,000 2,732,880
- -----------------------------------------------------------------------------------------------------------------------
$ 4,572,773
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Boeing Capital Corp., 6.5%, 2012 $ 5,886,000 $ 6,584,044
Northrop Grumman Corp., 7.75%, 2031 3,179,000 4,300,087
- -----------------------------------------------------------------------------------------------------------------------
$ 10,884,131
- -----------------------------------------------------------------------------------------------------------------------
Airlines - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.648%, 2017 $ 2,542,789 $ 2,509,161
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Foster's Financial Corp., 5.875%, 2035## $ 2,725,000 $ 2,738,685
Miller Brewing Co., 5.5%, 2013## 3,802,000 3,940,054
- -----------------------------------------------------------------------------------------------------------------------
$ 6,678,739
- -----------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 2.18%, 2008 $ 2,442,000 $ 2,421,528
Bear Stearns Commercial Mortgage Securities, Inc., 6.8%, 2008 182,553 187,377
Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 1,751,863 1,825,793
Capital One Auto Finance Trust, 4.79%, 2009 1,931,487 1,937,594
Capital One Auto Finance Trust, 3.18%, 2010 1,000,000 987,742
Chase Commercial Mortgage Securities Corp., 6.39%, 2008 1,845,000 1,963,355
Chase Commercial Mortgage Securities Corp., 7.543%, 2009 113,578 120,165
Citibank Credit Card Issuance Trust, 6.65%, 2008 1,216,000 1,243,602
Countrywide Asset-Backed Certificates, 4.823%, 2035 4,500,000 4,545,248
Countrywide Asset-Backed Certificates, 4.575%, 2035 244,000 245,141
CPS Auto Receivables Trust, 2.89%, 2009## 550,825 546,005
Credit Suisse First Boston Mortgage Securities Corp., 6.38%, 2035 1,100,000 1,199,330
CRIIMI MAE CMBS Corp., 6.701%, 2008## 169,000 173,650
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033## 2,065,000 2,147,600
Deutsche Mortgage & Asset Receiving Corp., FRN, 6.538%, 2031 1,740,051 1,824,068
Falcon Franchise Loan LLC, 7.382%, 2010## 687,263 727,349
First Union-Lehman Brothers Bank of America, 6.56%, 2035 3,633,876 3,827,491
First Union-Lehman Brothers Commercial Mortgage Trust, 7.38%, 2029 965,439 1,001,297
First Union-Lehman Brothers Commercial Mortgage Trust, 6.65%, 2029 824,189 861,741
Goldman Sachs Mortgage Securities Corp., 6.06%, 2030 54,229 54,333
Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 2,725,000 2,873,443
Greenwich Capital Commercial Funding Corp., FRN, 4.305%, 2042 1,738,715 1,738,203
J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.3839%, 2041 2,725,000 2,861,464
J.P. Morgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 2,944,995 3,049,647
J.P. Morgan Commercial Mortgage Finance Corp., 6.613%, 2030 170,000 178,215
Lehman Brothers Commercial Conduit Mortgage Trust, 6.48%, 2030 2,617,978 2,742,877
Lehman Brothers Commercial Conduit Mortgage Trust, 6.78%, 2031 3,192,218 3,452,249
Merrill Lynch Mortgage Investors, Inc., 6.39%, 2030 2,377,117 2,481,962
Morgan Stanley Capital I, 5.168%, 2042 1,360,138 1,418,324
Morgan Stanley Capital I, Inc., FRN, 0.7546%, 2030##^^ 31,907,636 662,004
Mortgage Capital Funding, Inc., 6.337%, 2031 2,289,658 2,401,387
Multi-Family Capital Access One, Inc., 6.65%, 2024 1,234,980 1,304,776
Residential Asset Mortgage Products, Inc., 3.8%, 2030 1,083,856 1,080,033
Residential Asset Mortgage Products, Inc., 4.109%, 2035 1,203,796 1,195,461
Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 1,251,000 1,246,968
Structured Asset Securities Corp., FRN, 4.67%, 2035 4,570,839 4,551,003
TIAA Retail Estate CDO Ltd., 7.17%, 2032## 1,746,574 1,818,121
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 2,193,818 2,279,068
Wachovia Bank Commerical Mortgage Trust, FRN, 4.847%, 2041 2,250,000 2,294,655
- -----------------------------------------------------------------------------------------------------------------------
$ 67,470,269
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 7.45%, 2031 $ 1,358,000 $ 1,133,680
Ford Motor Credit Co., 7.75%, 2007 1,065,000 1,085,712
Ford Motor Credit Co., 5.7%, 2010 3,681,000 3,395,137
General Motors Acceptance Corp., 5.85%, 2009 2,231,000 2,091,364
General Motors Acceptance Corp., 7.25%, 2011 1,251,000 1,173,028
General Motors Corp., 8.375%, 2033 3,316,000 2,768,860
- -----------------------------------------------------------------------------------------------------------------------
$ 11,647,781
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 $ 1,500,000 $ 2,187,727
Bank of America Corp., 7.4%, 2011 6,213,000 7,110,648
Bank of America Corp., 5.375%, 2014 2,640,000 2,805,108
Barclays Bank PLC, FRN, 6.86%, 2032## 2,000,000 2,351,632
Citigroup, Inc., 5%, 2014 8,038,000 8,222,440
Credit Suisse First Boston (USA), Inc., 4.625%, 2008 3,102,000 3,135,526
Credit Suisse First Boston (USA), Inc., 4.125%, 2010 2,703,000 2,683,909
DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049## 1,994,000 2,285,303
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049## 1,308,000 1,411,906
J.P. Morgan Chase & Co., 5.125%, 2014 3,161,000 3,233,548
Mizuho Financial Group, Inc., 5.79%, 2014## 1,694,000 1,781,831
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049## 652,000 724,540
Nordea Bank AB, 5.424% to 2015, FRN to 2049## 1,567,000 1,613,839
Popular North America, Inc., 4.25%, 2008 2,724,000 2,724,226
RBS Capital Trust II, 6.425% to 2034, FRN to 2049 3,000,000 3,327,789
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049## 1,741,000 1,863,020
UFJ Finance Aruba AEC, 6.75%, 2013 3,000,000 3,345,606
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049## 1,837,000 2,205,701
Wachovia Corp., 5.25%, 2014 5,837,000 6,093,168
Wells Fargo & Co., 6.45%, 2011 261,000 287,886
Wells Fargo National Bank, 4.75%, 2015 3,440,000 3,481,407
- -----------------------------------------------------------------------------------------------------------------------
$ 62,876,760
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625%, 2013 $ 2,900,000 $ 2,815,062
TCI Communications Financing III, 9.65%, 2027 2,475,000 2,804,526
Time Warner Entertainment Co. LP, 10.15%, 2012 564,000 729,114
Time Warner Entertainment Co. LP, 8.375%, 2033 1,877,000 2,491,156
- -----------------------------------------------------------------------------------------------------------------------
$ 8,839,858
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.7%, 2012 $ 3,746,000 $ 3,985,823
Lehman Brothers Holdings, Inc., 8.25%, 2007 926,000 997,388
Merrill Lynch & Co., Inc., 5.45%, 2014 3,075,000 3,247,538
Morgan Stanley Group, Inc., 6.75%, 2011 1,963,000 2,173,504
Morgan Stanley Group, Inc., 4.75%, 2014 1,957,000 1,927,976
- -----------------------------------------------------------------------------------------------------------------------
$ 12,332,229
- -----------------------------------------------------------------------------------------------------------------------
Building - 0%
- -----------------------------------------------------------------------------------------------------------------------
CRH North America, Inc., 6.95%, 2012 $ 1,028,000 $ 1,160,313
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 $ 1,500,000 $ 1,573,069
Dow Chemical Co., 6%, 2012 1,740,000 1,906,765
- -----------------------------------------------------------------------------------------------------------------------
$ 3,479,834
- -----------------------------------------------------------------------------------------------------------------------
Conglomerates - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 $ 2,287,000 $ 2,558,483
Tyco International Group S.A., 6.75%, 2011 2,250,000 2,497,730
- -----------------------------------------------------------------------------------------------------------------------
$ 5,056,213
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $ 2,534,000 $ 2,605,124
- -----------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011## $ 2,377,000 $ 2,589,228
Raytheon Co., 6.15%, 2008 704,000 742,848
- -----------------------------------------------------------------------------------------------------------------------
$ 3,332,076
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0%
- -----------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022 $ 209,000 $ 257,592
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
State of Israel, 4.625%, 2013 $ 901,000 $ 891,601
United Mexican States, 6.625%, 2015 3,700,000 4,071,850
United Mexican States, 7.5%, 2033 1,321,000 1,515,848
- -----------------------------------------------------------------------------------------------------------------------
$ 6,479,299
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Devon Financing Corp. U.L.C., 6.875%, 2011 $ 1,922,000 $ 2,150,655
EnCana Holdings Finance Corp., 5.8%, 2014 2,090,000 2,239,999
Kerr-McGee Corp., 6.95%, 2024 684,000 706,759
Ocean Energy, Inc., 4.375%, 2007 2,875,000 2,876,044
Pioneer Natural Resource Co., 5.875%, 2016 1,670,000 1,684,125
- -----------------------------------------------------------------------------------------------------------------------
$ 9,657,582
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $ 1,250,000 $ 1,508,210
- -----------------------------------------------------------------------------------------------------------------------
Entertainment - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Hearst-Argyle Television, Inc., 7.5%, 2027 $ 2,000,000 $ 2,254,300
Walt Disney Co., 6.75%, 2006 848,000 864,816
Walt Disney Co., 6.375%, 2012 2,063,000 2,281,437
- -----------------------------------------------------------------------------------------------------------------------
$ 5,400,553
- -----------------------------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75%, 2007 $ 135,000 $ 146,228
General Electric Capital Corp., 5.45%, 2013 2,098,000 2,225,508
General Electric Capital Corp., 6.75%, 2032 2,325,000 2,869,022
SLM Corp., 4%, 2009 1,929,000 1,913,572
- -----------------------------------------------------------------------------------------------------------------------
$ 7,154,330
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Cadbury Schweppes PLC, 5.125%, 2013## $ 4,177,000 $ 4,268,146
Coca-Cola HBC Finance B.V., 5.125%, 2013 2,000,000 2,084,768
Kraft Foods, Inc., 6.25%, 2012 2,054,000 2,257,987
- -----------------------------------------------------------------------------------------------------------------------
$ 8,610,901
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.8%, 2032 $ 1,014,000 $ 1,204,127
Weyerhaeuser Co., 6.75%, 2012 1,915,000 2,106,960
- -----------------------------------------------------------------------------------------------------------------------
$ 3,311,087
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
AIG SunAmerica Global Financing IV, 5.85%, 2006## $ 5,000 $ 5,048
AIG SunAmerica Institutional Funding II, 5.75%, 2009 313,000 328,147
American International Group, Inc., 4.25%, 2013 5,305,000 5,145,192
Genworth Financial, Inc., 5.75%, 2014 1,270,000 1,362,009
MetLife, Inc., 6.5%, 2032 880,000 1,010,208
Prudential Financial, Inc., 4.5%, 2013 1,837,000 1,828,170
Prudential Financial, Inc., 5.1%, 2014 4,234,000 4,357,988
Prudential Funding Corp., 6.6%, 2008## 837,000 892,384
- -----------------------------------------------------------------------------------------------------------------------
$ 14,929,146
- -----------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Allstate Corp., 6.125%, 2032 $ 1,087,000 $ 1,225,485
Allstate Corp., 5.55%, 2035 2,850,000 2,949,151
Fund American Cos., Inc., 5.875%, 2013 1,265,000 1,317,568
Travelers Property Casualty Corp., 6.375%, 2033 570,000 621,705
- -----------------------------------------------------------------------------------------------------------------------
$ 6,113,909
- -----------------------------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 0%
- -----------------------------------------------------------------------------------------------------------------------
Hydro-Quebec, 6.3%, 2011 $ 1,084,000 $ 1,197,793
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 $ 488,000 $ 554,617
HCA, Inc., 6.95%, 2012 1,877,000 1,994,344
- -----------------------------------------------------------------------------------------------------------------------
$ 2,548,961
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Alcan, Inc., 5.75%, 2035 $ 2,619,000 $ 2,664,047
- -----------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 13.8%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.722%, 2009 $ 495,000 $ 514,798
Fannie Mae, 6.33%, 2011 403,833 437,047
Fannie Mae, 4.01%, 2013 274,207 267,446
Fannie Mae, 4.019%, 2013 1,548,147 1,513,918
Fannie Mae, 4.804%, 2012 2,533,711 2,595,857
Fannie Mae, 4.667%, 2013 300,664 305,855
Fannie Mae, 4.845%, 2013 485,913 498,751
Fannie Mae, 4.518%, 2014 2,314,144 2,331,305
Fannie Mae, 4.63%, 2014 674,665 683,368
Fannie Mae, 4.846%, 2014 1,584,678 1,630,500
Fannie Mae, 4.925%, 2015 4,078,073 4,215,071
Fannie Mae, 6%, 2016 - 2034 56,428,623 58,006,827
Fannie Mae, 5.5%, 2017 - 2035 156,520,565 159,073,416
Fannie Mae, 5%, 2018 - 2034 31,791,160 32,066,858
Fannie Mae, 4.5%, 2018 - 2035 11,146,450 11,081,665
Fannie Mae, 4.88%, 2020 1,523,056 1,565,397
Fannie Mae, 6.5%, 2028 - 2034 19,247,533 19,958,820
Fannie Mae, 7.5%, 2030 - 2032 503,994 538,600
Fannie Mae TBA, 5.5%, 2033 1,358,000 1,376,249
Freddie Mac, 6%, 2016 - 2034 26,494,903 27,249,801
Freddie Mac, 5%, 2017 - 2034 26,912,004 27,095,004
Freddie Mac, 4.5%, 2018 - 2035 20,786,732 20,685,515
Freddie Mac, 5.5%, 2019 - 2034 29,753,521 30,268,060
Freddie Mac, 6.5%, 2034 9,458,691 9,793,956
Ginnie Mae, 6.5%, 2028 - 2034 2,862,952 2,992,694
Ginnie Mae, 6%, 2032 - 2035 14,591,821 15,052,316
Ginnie Mae, 4.5%, 2033 - 2034 3,217,044 3,175,099
Ginnie Mae, 5.5%, 2033 - 2035 19,338,605 19,766,085
Ginnie Mae, 5%, 2034 4,699,928 4,742,064
- -----------------------------------------------------------------------------------------------------------------------
$ 459,482,342
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 1,154,000 $ 1,370,757
Kinder Morgan Energy Partners LP, 6.75%, 2011 1,994,000 2,192,943
Kinder Morgan Energy Partners LP, 7.4%, 2031 398,000 484,925
Kinder Morgan Energy Partners LP, 7.75%, 2032 1,773,000 2,250,770
- -----------------------------------------------------------------------------------------------------------------------
$ 6,299,395
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 3,560,000 $ 3,733,479
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Wyeth, 5.5%, 2013 $ 2,713,000 $ 2,855,300
- -----------------------------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
USA Waste Services, Inc., 7%, 2028 $ 1,229,000 $ 1,425,450
Waste Management, Inc., 7.375%, 2010 1,813,000 2,027,391
Waste Management, Inc., 7.1%, 2026 500,000 580,524
- -----------------------------------------------------------------------------------------------------------------------
$ 4,033,365
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.75%, 2011 $ 1,750,000 $ 1,931,940
Union Pacific Corp., 6.125%, 2012 674,000 727,468
Union Pacific Corp., 5.375%, 2014 2,003,000 2,088,817
- -----------------------------------------------------------------------------------------------------------------------
$ 4,748,225
- -----------------------------------------------------------------------------------------------------------------------
Real Estate - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc., 5%, 2015 $ 2,000,000 $ 1,999,482
EOP Operating LP, 6.8%, 2009 3,719,000 3,985,913
EOP Operating Ltd., 8.1%, 2010 1,195,000 1,377,082
HRPT Properties Trust, 6.25%, 2016 2,022,000 2,189,258
Kimco Realty Corp., 6%, 2012 1,000,000 1,088,582
Simon Property Group LP, 6.375%, 2007 1,771,000 1,848,915
Simon Property Group LP, 5.1%, 2015## 1,848,000 1,847,011
Vornado Realty Trust, 5.625%, 2007 3,795,000 3,868,107
Vornado Realty Trust, 4.75%, 2010 1,137,000 1,132,923
- -----------------------------------------------------------------------------------------------------------------------
$ 19,337,273
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 1,900,000 $ 2,302,082
- -----------------------------------------------------------------------------------------------------------------------
Retailers - 0%
- -----------------------------------------------------------------------------------------------------------------------
Wal-Mart Stores, Inc., 6.875%, 2009 $ 1,460,000 $ 1,608,977
- -----------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Kroger Co., 6.75%, 2012 $ 3,273,000 $ 3,624,235
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.35%, 2006 $ 416,000 $ 425,090
AT&T Wireless Services, Inc., 8.75%, 2031 1,800,000 2,522,948
Cingular Wireless LLC, 6.5%, 2011 1,600,000 1,767,491
Sprint Capital Corp., 6.875%, 2028 2,462,000 2,826,085
- -----------------------------------------------------------------------------------------------------------------------
$ 7,541,614
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
BellSouth Corp., 6.55%, 2034 $ 2,300,000 $ 2,618,773
Deutsche Telekom International Finance B.V., 8.75%, 2030 3,160,000 4,278,574
France Telecom S.A., 7.75%, 2011 1,024,000 1,188,325
PCCW-HKTC Capital II Ltd., 6%, 2013## 2,020,000 2,144,753
SBC Communications, Inc., 5.1%, 2014 2,000,000 2,044,924
SBC Communications, Inc., 6.15%, 2034 1,150,000 1,245,723
Telecom Italia Capital, 5.25%, 2013 1,278,000 1,297,432
Telecom Italia Capital, 6%, 2034## 1,460,000 1,490,548
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 193,000 196,913
Verizon New York, Inc., 6.875%, 2012 5,557,000 6,141,446
- -----------------------------------------------------------------------------------------------------------------------
$ 22,647,411
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2006 $ 6,850,000 $ 6,811,400
Fannie Mae, 3%, 2007 7,000,000 6,908,545
Fannie Mae, 5.25%, 2007 10,643,000 10,903,902
Fannie Mae, 6%, 2008 - 2011 14,867,000 16,079,353
Fannie Mae, 6.625%, 2009 - 2010 13,521,000 15,038,628
Fannie Mae, 6.125%, 2012 6,932,000 7,752,243
Fannie Mae, 4.625%, 2014 3,328,000 3,413,110
Federal Home Loan Bank, 3.25%, 2006 4,495,000 4,470,286
Federal Home Loan Bank, 3.75%, 2006 14,385,000 14,353,180
Federal Home Loan Bank, 3.9%, 2008 1,745,000 1,744,038
Freddie Mac, 7%, 2005 14,172,000 14,190,806
Freddie Mac, 3.75%, 2006 6,770,000 6,765,545
Freddie Mac, 4.125%, 2009 7,200,000 7,196,126
Freddie Mac, 4.875%, 2013 4,065,000 4,253,104
Small Business Administration, 4.35%, 2023 3,751,170 3,729,563
Small Business Administration, 4.77%, 2024 1,309,273 1,326,627
Small Business Administration, 4.99%, 2024 1,981,835 2,028,550
Small Business Administration, 5.18%, 2024 2,182,194 2,254,100
Small Business Administration, 5.52%, 2024 3,350,478 3,514,876
Small Business Administration, 4.95%, 2025 1,733,000 1,769,217
- -----------------------------------------------------------------------------------------------------------------------
$ 134,503,199
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.5%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 10.375%, 2012 $ 2,073,000 $ 2,384,354
U.S. Treasury Bonds, 9.875%, 2015 2,985,000 4,461,408
U.S. Treasury Bonds, 8%, 2021 7,467,000 10,759,185
U.S. Treasury Bonds, 6.25%, 2023 45,743,000 57,005,430
U.S. Treasury Bonds, 5.375%, 2031 3,451,000 4,072,180
U.S. Treasury Notes, 5.75%, 2005 10,903,000 10,999,677
U.S. Treasury Notes, 5.875%, 2005 2,764,000 2,789,697
U.S. Treasury Notes, 6.875%, 2006 20,398,000 20,982,851
U.S. Treasury Notes, 7%, 2006 30,842,000 31,910,614
U.S. Treasury Notes, 4.375%, 2007 1,694,000 1,716,564
U.S. Treasury Notes, 3%, 2007 2,498,000 2,461,702
U.S. Treasury Notes, 5.5%, 2008 20,125,000 21,056,566
U.S. Treasury Notes, 5.625%, 2008 34,007,000 35,800,325
U.S. Treasury Notes, 4.75%, 2008 57,315,000 59,213,559
U.S. Treasury Notes, 4.25%, 2010 10,231,739 11,513,898
U.S. Treasury Notes, 5%, 2011 12,769,000 13,566,565
U.S. Treasury Notes, 3%, 2012 12,703,502 13,953,006
U.S. Treasury Notes, 3.875%, 2013 2,042,000 2,044,473
U.S. Treasury Notes, 4.75%, 2014 2,485,000 2,636,819
U.S. Treasury Notes, 4.125%, 2015 6,715,000 6,813,099
- -----------------------------------------------------------------------------------------------------------------------
$ 316,141,972
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 7.05%, 2011 $ 2,932,000 $ 3,282,770
Duke Capital Corp., 8%, 2019 2,544,000 3,148,564
Exelon Generation Co. LLC, 6.95%, 2011 3,059,000 3,431,617
FirstEnergy Corp., 6.45%, 2011 2,314,000 2,528,337
MidAmerican Energy Holdings Co., 3.5%, 2008 1,500,000 1,461,774
MidAmerican Energy Holdings Co., 5.875%, 2012 510,000 541,731
MidAmerican Funding LLC, 6.927%, 2029 414,000 493,048
Niagara Mohawk Power Corp., 7.75%, 2006 863,000 890,798
Northeast Utilities, 8.58%, 2006 82,937 84,503
Oncor Electric Delivery Co., 7%, 2022 2,625,000 3,068,336
Pacific Gas & Electric Co., 4.8%, 2014 2,413,000 2,418,955
PSEG Power LLC, 6.95%, 2012 892,000 1,002,722
PSEG Power LLC, 8.625%, 2031 1,177,000 1,624,985
System Energy Resources, Inc., 5.129%, 2014## 1,466,999 1,461,072
TXU Energy Co., 7%, 2013 893,000 995,902
W3A Funding Corp., 8.09%, 2017 236,960 263,765
- -----------------------------------------------------------------------------------------------------------------------
$ 26,698,879
- -----------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,273,128,893) $1,288,836,419
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Edison Asset Securitization LLC, 3.4%, due 7/01/05, at Amortized Cost@< $ 64,304,000 $ 64,304,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 118,034,068 $ 118,034,068
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $3,241,468,131)(S) $3,450,195,316
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.3)% (111,466,064)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $3,338,729,252
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
@ Security exempt from registration under Section 4(2) of the Securities Act of 1933.
## SEC Rule 144A restriction.
^^ Interest only security for which the series receives interest on notional principal (Par amount). Par
amount shown is the notional principal and does not reflect the cost of the security.
(S) As of June 30, 2005, the series had 11 securities representing $47,401,775 and 1.4% of net assets that were fair
valued in accordance with the policies adopted by the Board of Trustees.
< The rate shown represents an annualized yield at time of purchase.
Abbreviations:
ADR = American Depository Receipt
FRN = Floating Rate Note. The interest rate is the rate in effect as of period
end.
TBA = To Be Announced
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $115,215,972 of securities on loan
(identified cost, $3,241,468,131) $3,450,195,316
Cash 31,223
Foreign currency, at value (identified cost, $297) 289
Receivable for investments sold 5,105,298
Receivable for series shares sold 3,721,758
Interest and dividends receivable 16,084,721
Other assets 497
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $3,475,139,102
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $15,556,972
Payable for TBA purchase commitments 1,374,551
Payable for series shares reacquired 851,416
Collateral for securities loaned, at value 118,034,068
Payable to affiliates
Management fee 68,976
Shareholder servicing costs 3,456
Distribution fee 5,124
Administrative services fee 1,129
Accrued expenses and other liabilities 514,158
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $136,409,850
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $3,338,729,252
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $3,063,698,888
Unrealized appreciation (depreciation) on investments and translation of assets
and liabilities in foreign currencies 208,723,097
Accumulated undistributed net realized gain (loss) on investments and foreign
currency transactions 31,452,228
Accumulated undistributed net investment income 34,855,039
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $3,338,729,252
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 165,107,791
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $2,594,043,186 / 128,053,234 shares of beneficial interest
outstanding) $20.26
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $744,686,066 / 37,054,557 shares of beneficial interest
outstanding) $20.10
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses.
It also describes any gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Interest $29,447,555
Dividends 20,146,140
Foreign taxes withheld (327,682)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $49,266,013
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $11,777,687
Distribution fee 843,145
Shareholder servicing costs 550,168
Administrative services fee 202,031
Trustees' compensation 25,998
Custodian fee 379,211
Printing 276,545
Postage 6,027
Auditing fees 29,507
Legal fees 50,348
Shareholder solicitation expenses 347,298
Miscellaneous 8,084
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $14,496,049
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (78,571)
Reduction of expenses by investment adviser (7,261)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $14,410,217
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $34,855,796
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $57,873,140
Foreign currency transactions (18,119)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $57,855,021
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(69,389,074)
Translation of assets and liabilities in foreign currencies (20,327)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(69,409,401)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(11,554,380)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $23,301,416
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $34,855,796 $57,168,401
Net realized gain (loss) on investments and foreign currency transactions 57,855,021 145,295,438
Net unrealized gain (loss) on investments and foreign currency translation (69,409,401) 87,920,606
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $23,301,416 $290,384,445
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(50,921,163) $(32,901,330)
Service Class (12,933,984) (7,121,596)
From net realized gain on investments and foreign currency transactions
Initial Class (99,830,806) --
Service Class (27,814,044) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(191,499,997) $(40,022,926)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $463,716,124 $607,771,110
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $295,517,543 $858,132,629
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 3,043,211,709 2,185,079,080
At end of period (including accumulated undistributed net investment income of
$34,855,039 and $63,854,390, respectively) $3,338,729,252 $3,043,211,709
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ----------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $21.43 $19.58 $17.14 $18.60 $19.59 $17.75
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.23 $0.46 $0.38 $0.45 $0.51 $0.61
Net realized and unrealized gain (loss)
on investments and foreign currency (0.12) 1.72 2.37 (1.37) (0.46) 2.10
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.11 $2.18 $2.75 $(0.92) $0.05 $2.71
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.43) $(0.33) $(0.31) $(0.30) $(0.42) $(0.44)
From net realized gain on investments and
foreign currency transactions (0.85) -- -- (0.24) (0.62) (0.43)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(1.28) $(0.33) $(0.31) $(0.54) $(1.04) $(0.87)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.26 $21.43 $19.58 $17.14 $18.60 $19.59
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.68++*** 11.32*** 16.32 (5.17) 0.25 16.02
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.87+ 0.83 0.84 0.86 0.89 0.90
Expenses after expense reductions## 0.87+ 0.83 0.84 0.86 0.89 0.90
Net investment income(S) 2.28+ 2.28 2.14 2.58 2.75 3.40
Portfolio turnover 24 57 53 73 98 76
Net assets at end of period (000 Omitted) $2,594,043 $2,406,156 $1,790,999 $1,036,038 $684,964 $351,870
- --------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $21.25 $19.44 $17.05 $18.54 $19.56 $17.07
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.21 $0.41 $0.33 $0.40 $0.45 $0.41
Net realized and unrealized gain (loss) on investments
and foreign currency (0.12) 1.70 2.36 (1.36) (0.44) 2.08
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.09 $2.11 $2.69 $(0.96) $0.01 $2.49
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.39) $(0.30) $(0.30) $(0.29) $(0.41) $--
From net realized gain on investments and foreign
currency transactions (0.85) -- -- (0.24) (0.62) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1.24) $(0.30) $(0.30) $(0.53) $(1.03) $--
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.10 $21.25 $19.44 $17.05 $18.54 $19.56
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.60++*** 11.03*** 16.00 (5.35) 0.02 14.59++
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.12+ 1.08 1.09 1.10 1.09 1.15+
Expenses after expense reductions## 1.12+ 1.08 1.09 1.10 1.09 1.15+
Net investment income(S) 2.03+ 2.04 1.87 2.37 2.44 3.14+
Portfolio turnover 24 57 53 73 98 76
Net assets at end of period (000 Omitted) $744,686 $637,055 $394,080 $175,535 $40,191 $3,553
- --------------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, May 1, 2000, through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) Effective January 1, 2001, the series adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing and accreting all premiums and discounts on debt securities. Per share data and ratios for
periods prior to January 1, 2001 have not been restated to reflect this change.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Total Return Series (the series) is a diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 105 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Bonds and other fixed income securities
(other than short-term obligations) in the series' portfolio are valued at an
evaluated bid price as reported by an independent pricing service, or to the
extent a valuation is not reported by a pricing service, such securities are
valued on the basis of quotes from brokers and dealers. Prices obtained from
pricing services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on 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.
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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
The series may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The series holds, and maintains until settlement date, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or
the series may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the series' other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. During the six months ended June 30, 2005, the series' custodian
fees were reduced by $66,018 under this arrangement. The series has entered
into a commission recapture agreement, under which certain brokers will credit
the series a portion of the commissions generated, to offset certain expenses
of the series. For the six months ended June 30, 2005, the series'
miscellaneous expenses were reduced by $12,553 under this agreement. These
amounts are shown as a reduction of total expenses on the Statement of
Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, real estate investment trusts,
wash sales and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $40,022,926 $25,991,652
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $ 86,929,214
Undistributed long-term capital gain 104,568,810
Unrealized appreciation (depreciation) 251,730,921
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified
retirement and pension plans that invest in the series, and affiliates of
these participating insurance companies and plan sponsors) in connection with
the sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $549,625, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $374.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets. The administrative services fee incurred for
the six months ended June 30, 2005 was equivalent to an annual effective rate
of 0.0129% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to its Independent
Trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The series does not pay
compensation directly to Trustees who are officers of the investment adviser,
or to officers of the series, all of whom receive remuneration for their
services to the series from MFS. Certain officers and Trustees of the series
are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS
Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $7,261, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. On July 28, 2004, the series accrued an estimate
of the amount to be received pursuant to this matter in the amount of $81,860
which did not have a material impact on the net asset value per share based on
the shares outstanding on the day the proceeds were recorded. The proceeds
were paid to the series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
U.S. government securities $357,904,883 $244,198,704
--------------------------------------------------------------
Investments (non-U.S. government
securities) $721,914,667 $496,360,811
--------------------------------------------------------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $3,270,463,463
------------------------------------------------------
Gross unrealized appreciation $247,505,551
Gross unrealized depreciation (67,773,698)
------------------------------------------------------
Net unrealized appreciation
(depreciation) $179,731,853
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 11,716,586 $244,776,086 25,154,609 $502,817,541
Shares issued to shareholders in reinvestment
of distributions 7,660,161 150,751,969 1,694,198 32,901,330
Shares reacquired (3,626,161) (75,536,980) (6,031,845) (120,430,362)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 15,750,575 $319,991,075 20,816,962 $415,288,509
SERVICE CLASS SHARES
Shares sold 6,429,205 $132,700,491 11,814,896 $234,580,214
Shares issued to shareholders in reinvestment
of distributions 2,086,432 40,748,028 368,995 7,121,596
Shares reacquired (1,435,592) (29,723,470) (2,480,200) (49,219,209)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 7,080,045 $143,725,049 9,703,691 $192,482,601
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $11,495 and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
(7) FINANCIAL INSTRUMENTS
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the series has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Total Return Series, which was
held on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VTR-SEM 8/05 54M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) STRATEGIC INCOME SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) STRATEGIC INCOME SERIES
Objective: Seeks high current income by investing in fixed income securities.
Its secondary objective seeks to provide significant capital appreciation.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 12
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 17
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 22
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 22
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 22
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Bonds 94.3%
Cash & Other Net Assets 5.5%
Convertible Preferred Stock 0.2%
MARKET SECTORS*
High Yield Corporates 35.5%
------------------------------------------------
International Bonds 15.9%
------------------------------------------------
Emerging Market Bonds 14.8%
------------------------------------------------
Commercial Mortgage-Backed Securities 9.5%
------------------------------------------------
High Grade Corporates 8.9%
------------------------------------------------
Mortgage-Backed Securities 6.0%
------------------------------------------------
Cash and Other Net Assets 5.5%
------------------------------------------------
U.S. Government Agencies 3.5%
------------------------------------------------
Asset-Backed Securities 0.2%
------------------------------------------------
Domestic Convertibles 0.2%
------------------------------------------------
CREDIT QUALITY**
AAA 32.0%
------------------------------------------------
AA 1.0%
------------------------------------------------
A 2.7%
------------------------------------------------
BBB 14.4%
------------------------------------------------
BB 20.9%
------------------------------------------------
B 21.8%
------------------------------------------------
CCC 5.4%
------------------------------------------------
Not Rated 1.8%
------------------------------------------------
PORTFOLIO FACTS
Average Duration 3.9
------------------------------------------------
Average Life 7.4 yrs.
------------------------------------------------
Average Maturity*** 10.8 yrs.
------------------------------------------------
Average Quality**** BBB
------------------------------------------------
Average Short-Term Quality A-1
------------------------------------------------
COUNTRY WEIGHTINGS*
United States 63.0%
------------------------------------------------
Russia 3.8%
------------------------------------------------
Germany 3.0%
------------------------------------------------
Brazil 2.8%
------------------------------------------------
Mexico 2.8%
------------------------------------------------
Ireland 2.5%
------------------------------------------------
Spain 2.3%
------------------------------------------------
Netherlands 2.0%
------------------------------------------------
France 1.9%
------------------------------------------------
Other Countries 15.9%
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments
as of 6/ 30/05.
*** The average maturity shown is calculated using the final stated maturity
on the portfolio's holdings without taking into account any holdings which
have been pre-refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Portfolio Average Credit Quality rating is based upon a market
weighted average of portfolio holdings.
Percentages are based on net assets as of 6/30/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $1,011.20 $4.49
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.90% $1,000.00 $1,020.33 $4.51
- -------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,008.50 $5.73
Service -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.09 $5.76
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your portfolio.
It is categorized by broad-based asset classes.
Bonds - 97.1%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 175,000 $ 172,375
Echostar DBS Corp., 6.375%, 2011 95,000 94,169
Emmis Operating Co., 6.875%, 2012 45,000 44,550
Innova S. de R.L., 9.375%, 2013 51,000 57,503
Intelsat Ltd., 8.625%, 2015# 90,000 94,950
Lamar Media Corp., 7.25%, 2013 115,000 121,325
Liberty Media Corp., 5.7%, 2013 100,000 93,010
News America Holdings, 7.7%, 2025 37,000 44,785
Panamsat Holding Corp., 0% to 2005, 10.375% to 2014 120,000 82,500
Paxson Communications Corp., 0% to 2006, 12.25% to 2009 145,000 135,575
Spanish Broadcasting System, Inc., 9.625%, 2009 140,000 146,825
- -----------------------------------------------------------------------------------------------------------------------
$ 1,087,567
- -----------------------------------------------------------------------------------------------------------------------
Airlines - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.568%, 2006 $ 45,000 $ 38,747
Continental Airlines, Inc., 7.566%, 2020 87,461 72,032
- -----------------------------------------------------------------------------------------------------------------------
$ 110,779
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Levi Strauss & Co., 12.25%, 2012 $ 45,000 $ 49,163
- -----------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 9.6%
- -----------------------------------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I, 7%, 2029 $ 336,000 $ 345,818
ARCap, Inc., 6.1%, 2045# 100,000 94,000
Asset Securitization Corp., 8.7809%, 2029# 85,000 79,986
Asset Securitization Corp., FRN, 8.0064%, 2029 122,044 127,322
Countrywide Asset-Backed Certificates, 4.575%, 2035 20,000 20,094
CPS Auto Receivables Trust, 2.89%, 2009# 41,496 41,132
Crest Ltd., 7%, 2040# 137,000 133,251
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 153,000 146,115
DLJ Commercial Mortgage Corp., 6.04%, 2031 185,000 188,164
Falcon Franchise Loan LLC, FRN, 3.804%, 2025^ 683,214 118,719
First Union National Bank Commercial Mortgage Trust, FRN, 0.9629%, 2043^# 2,404,201 106,495
First Union-Lehman Brothers Bank of America, FRN, 0.50738%, 2035^ 5,195,899 107,301
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029# 153,000 172,607
First Union-Lehman Brothers Commercial Mortgage Trust, FRN, 7.5%, 2029 153,027 180,337
GE Capital Commercial Mortgage Corp., 6.496%, 2033 186,715 204,538
GMAC Commercial Mortgage Securities, Inc., 7.9079%, 2034# 147,000 163,160
Lehman Brothers Commercial Conduit Mortgage Trust, 1.1563%, 2030^ 1,559,968 47,694
Morgan Stanley Capital I, Inc., 7.18%, 2009 140,000 148,307
Morgan Stanley Capital I, Inc., 6.86%, 2010 185,000 190,850
Morgan Stanley Capital I, Inc., 1.5639%, 2039^# 1,332,449 110,327
Mortgage Capital Funding, Inc., FRN, 0.830889%, 2031^ 1,531,877 29,428
Mortgage Capital Funding, Inc., 6.337%, 2031 180,206 188,999
Prudential Securities Secured Financing Corp., 7.4029%, 2013# 171,000 189,287
Salomon Brothers Mortgage Securities, Inc., FRN, 7.1418%, 2032# 224,179 254,618
TIAA Real Estate CDO Ltd., 7.17%, 2032# 277,510 288,878
- -----------------------------------------------------------------------------------------------------------------------
$ 3,677,427
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Affinia Group, Inc., 9%, 2014# $ 10,000 $ 8,400
Ford Motor Credit Co., 6.625%, 2008 195,000 192,591
General Motors Acceptance Corp., 5.85%, 2009 146,000 136,862
General Motors Corp., 8.375%, 2033 282,000 235,470
Navistar International Corp., 7.5%, 2011 120,000 122,400
TRW Automotive, Inc., 9.375%, 2013 36,000 39,870
TRW Automotive, Inc., 11%, 2013 6,000 6,900
- -----------------------------------------------------------------------------------------------------------------------
$ 742,493
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 3.0%
- -----------------------------------------------------------------------------------------------------------------------
Banco Mercantil del Norte S.A., FRN, 5.875%, 2014# $ 164,000 $ 166,665
BNP Paribas, 5.186%, 2049# 103,000 104,135
Bosphorus Financial Services Ltd., 5.0681%, 2012# 100,000 97,000
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049# 100,000 98,243
DFS Funding Corp., 5.49%, 2010# 114,000 114,285
Kazkommerts International B.V., 10.125%, 2007# 14,000 15,190
Kazkommerts International B.V., 10.125%, 2007 20,000 21,700
Kazkommerts International B.V., 8.5%, 2013 20,000 21,200
Mizuho Financial Group, Inc., 5.79%, 2014# 167,000 175,659
Turanalem Finance B.V., 8%, 2014# 100,000 101,000
UFJ Finance Aruba AEC, 6.75%, 2013 70,000 78,064
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049# 125,000 150,089
- -----------------------------------------------------------------------------------------------------------------------
$ 1,143,230
- -----------------------------------------------------------------------------------------------------------------------
Basic Industry - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Trimas Corp., 9.875%, 2012 $ 40,000 $ 33,600
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., 8.375%, 2014# $ 160,000 $ 159,200
Continental Cablevision, Inc., 9.5%, 2013 187,000 196,635
CSC Holdings, Inc., 8.125%, 2009 165,000 167,063
Mediacom Broadband LLC, 9.5%, 2013 50,000 49,875
Mediacom Broadband LLC, 11%, 2013 50,000 54,125
Rogers Cable, Inc., 5.5%, 2014 109,000 102,733
TCI Communications, Inc., 9.8%, 2012 81,000 103,170
- -----------------------------------------------------------------------------------------------------------------------
$ 832,801
- -----------------------------------------------------------------------------------------------------------------------
Building - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 70,000 $ 74,531
Jacuzzi Brands, Inc., 9.625%, 2010 40,000 43,800
Nortek Holdings, Inc., 8.5%, 2014 70,000 65,100
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014# 105,000 49,350
- -----------------------------------------------------------------------------------------------------------------------
$ 232,781
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $ 185,000 $ 191,475
Iron Mountain, Inc., 7.75%, 2015 20,000 20,100
Lucent Technologies, Inc., 5.5%, 2008 150,000 148,875
Xerox Corp., 7.625%, 2013 160,000 172,200
- -----------------------------------------------------------------------------------------------------------------------
$ 532,650
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 2.3%
- -----------------------------------------------------------------------------------------------------------------------
BCP Crystal Holdings Corp., 9.625%, 2014 $ 143,000 $ 160,160
Equistar Chemicals LP, 10.625%, 2011 100,000 110,375
Huntsman International LLC, 10.125%, 2009 90,000 92,588
Kronos International, Inc., 8.875%, 2009 EUR 10,000 12,814
Lyondell Chemical Co., 11.125%, 2012 $ 125,000 141,875
Nalco Co., 7.75%, 2011 55,000 58,575
Nalco Finance Holdings LLC, 0% to 2009, 9% to 2014 75,000 55,406
Nova Chemicals Corp., 6.5%, 2012 125,000 121,250
Rhodia S.A., 8.875%, 2011 130,000 125,125
- -----------------------------------------------------------------------------------------------------------------------
$ 878,168
- -----------------------------------------------------------------------------------------------------------------------
Construction - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8%, 2009 $ 80,000 $ 87,632
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Church & Dwight, Inc., 6%, 2012 $ 110,000 $ 111,100
Revlon Consumer Products Corp., 9.5%, 2011 105,000 99,225
- -----------------------------------------------------------------------------------------------------------------------
$ 210,325
- -----------------------------------------------------------------------------------------------------------------------
Containers - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 $ 55,000 $ 60,775
Huntsman Packaging Corp., 13%, 2010 15,000 12,150
Owens-Brockway Glass Container, Inc., 8.875%, 2009 85,000 90,313
Owens-Brockway Glass Container, Inc., 8.25%, 2013 165,000 179,231
Pliant Corp., 13%, 2010 100,000 81,000
- -----------------------------------------------------------------------------------------------------------------------
$ 423,469
- -----------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 6.125%, 2014 $ 170,000 $ 170,000
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 100,000 $ 103,500
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013# $ 110,000 $ 134,750
Gazprom OAO, 9.625%, 2013 80,000 98,000
Gazprom OAO, 8.625%, 2034# 109,000 136,659
Pemex Project Funding Master Trust, 7.375%, 2014 83,000 93,085
Pemex Project Funding Master Trust, 8.625%, 2022 92,000 113,390
Petroliam Nasional Berhad, 7.875%, 2022 115,000 146,359
Petronas Capital Ltd., 7.875%, 2022# 100,000 127,269
- -----------------------------------------------------------------------------------------------------------------------
$ 849,512
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 9.6%
- -----------------------------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 $ 721,955 $ 739,102
Federal Republic of Brazil, 8.875%, 2019 217,000 230,020
Federal Republic of Brazil, 4.25%, 2024 100,000 94,000
Republic of Argentina, FRN, 3.01%, 2012 329,000 297,581
Republic of Colombia, 11.75%, 2020 53,000 69,695
Republic of Panama, 9.375%, 2023 115,000 142,025
Republic of Panama, 9.375%, 2029 115,000 142,313
Republic of Peru, 9.875%, 2015 179,000 221,513
Republic of South Africa, 9.125%, 2009 33,000 38,280
Republic of South Africa, 8.5%, 2017 70,000 90,388
Republic of Turkey, 7.25%, 2015 38,000 39,140
Republic of Turkey, 7%, 2020 20,000 19,550
Russian Federation, 3%, 2008 200,000 188,700
Russian Federation, 3%, 2011 400,000 352,000
Russian Federation, 11%, 2018 128,000 190,938
Russian Federation, 5%, 2030 95,000 106,058
State of Qatar, 9.75%, 2030 88,000 136,620
United Mexican States, 6.625%, 2015 117,000 128,759
United Mexican States, 8.125%, 2019 265,000 325,288
United Mexican States, 8.3%, 2031 103,000 128,235
- -----------------------------------------------------------------------------------------------------------------------
$ 3,680,205
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 $ 140,000 $ 151,900
Chesapeake Energy Corp., 6.375%, 2015# 35,000 35,875
Encore Acquisition Co., 6.25%, 2014 70,000 70,875
Kerr-McGee Corp., 6.95%, 2024 170,000 175,656
Newfield Exploration Co., 6.625%, 2014 70,000 73,325
Pioneer Natural Resource Co., 6.5%, 2008 69,000 71,482
Plains Exploration & Production Co., 7.125%, 2014 70,000 74,900
- -----------------------------------------------------------------------------------------------------------------------
$ 654,013
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Siberian Oil Co., 10.75%, 2009 $ 34,000 $ 38,039
Tyumen Oil Co., 11%, 2007 56,000 61,950
- -----------------------------------------------------------------------------------------------------------------------
$ 99,989
- -----------------------------------------------------------------------------------------------------------------------
Entertainment - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 101,000 $ 99,106
Loews Cineplex Entertainment Corp., 9%, 2014# 55,000 53,213
Six Flags, Inc., 9.75%, 2013 150,000 141,563
Turner Broadcasting System, Inc., 8.375%, 2013 70,000 85,844
- -----------------------------------------------------------------------------------------------------------------------
$ 379,726
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 $ 130,000 $ 132,600
Georgia-Pacific Corp., 9.375%, 2013 70,000 79,188
Georgia-Pacific Corp., 7.25%, 2028 115,000 123,050
Graphic Packaging International, Inc., 8.5%, 2011 90,000 92,700
JSG Funding PLC, 7.75%, 2015# EUR 95,000 90,728
MDP Acquisitions PLC, 9.625%, 2012 $ 95,000 95,000
Stone Container Corp., 7.375%, 2014 110,000 103,400
- -----------------------------------------------------------------------------------------------------------------------
$ 716,666
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.7%
- -----------------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014 $ 110,000 $ 112,750
Host Marriott LP, 7.125%, 2013 90,000 93,825
Host Marriott LP, 6.375%, 2015# 90,000 89,100
MGM Mirage, Inc., 8.375%, 2011 195,000 212,550
Pinnacle Entertainment, Inc., 8.75%, 2013 120,000 127,200
Royal Caribbean Cruises Ltd., 8%, 2010 95,000 105,213
Scientific Games Corp., 6.25%, 2012# 85,000 85,850
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 100,000 112,750
Station Casinos, Inc., 6.5%, 2014 85,000 86,700
- -----------------------------------------------------------------------------------------------------------------------
$ 1,025,938
- -----------------------------------------------------------------------------------------------------------------------
Industrial - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011# $ 145,000 $ 156,600
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 80,000 81,200
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 115,000 81,794
Williams Scotsman, Inc., 9.875%, 2007 50,000 50,250
Williams Scotsman, Inc., 10%, 2008 15,000 16,577
- -----------------------------------------------------------------------------------------------------------------------
$ 386,421
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 389,000 $ 377,282
Willis Group North America, Inc., 5.625%, 2015 44,000 44,282
- -----------------------------------------------------------------------------------------------------------------------
$ 421,564
- -----------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Allianz AG, 5.5%, 2049 EUR 105,000 $ 139,694
- -----------------------------------------------------------------------------------------------------------------------
International Market Sovereign - 15.5%
- -----------------------------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.65%, 2009 CAD 45,000 $ 38,596
Commonwealth of Australia, 6%, 2017 AUD 113,000 92,294
Federal Republic of Germany, 3.5%, 2008 EUR 492,000 618,700
Federal Republic of Germany, 6.25%, 2030 EUR 63,000 108,159
Government of Canada, 5.5%, 2009 CAD 60,000 53,040
Government of Canada, 5.25%, 2012 CAD 118,000 105,637
Government of Canada, 4.5%, 2015 CAD 18,000 15,425
Government of New Zealand, 7%, 2009 NZD 85,000 61,558
Government of New Zealand, 6.5%, 2013 NZD 640,000 466,313
Government of New Zealand, 6%, 2015 NZD 53,000 37,625
Kingdom of Netherlands, 5.75%, 2007 EUR 310,000 397,038
Kingdom of Netherlands, 3.75%, 2009 EUR 286,000 364,183
Kingdom of Norway, 6.5%, 2013 NOK 325,000 60,484
Kingdom of Spain, 6%, 2008 EUR 258,000 341,740
Kingdom of Spain, 5.35%, 2011 EUR 363,000 505,254
Republic of Austria, 5.5%, 2007 EUR 222,000 288,738
Republic of Finland, 3%, 2008 EUR 454,000 561,894
Republic of Finland, 5.375%, 2013 EUR 44,000 62,465
Republic of France, 4.75%, 2007 EUR 355,000 451,987
Republic of France, 6%, 2025 EUR 20,000 32,573
Republic of Ireland, 4.25%, 2007 EUR 511,000 647,596
Republic of Ireland, 4.6%, 2016 EUR 34,000 46,477
United Kingdom Treasury, 5.75%, 2009 GBP 138,000 264,138
United Kingdom Treasury, 8%, 2015 GBP 133,000 315,476
- -----------------------------------------------------------------------------------------------------------------------
$ 5,937,390
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5%, 2012 $ 59,000 $ 66,670
Terex Corp., 10.375%, 2011 85,000 92,225
Terex Corp., 7.375%, 2014 125,000 129,375
United Rentals, Inc., 6.5%, 2012 220,000 216,425
- -----------------------------------------------------------------------------------------------------------------------
$ 504,695
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Baxter International, Inc., 9.5%, 2008 $ 67,000 $ 76,024
DaVita, Inc., 6.625%, 2013# 35,000 36,138
HCA, Inc., 6.375%, 2015 115,000 119,325
- -----------------------------------------------------------------------------------------------------------------------
$ 231,487
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Century Aluminum Co., 7.5%, 2014 $ 15,000 $ 14,813
Foundation PA Coal Co., 7.25%, 2014 10,000 10,500
International Steel Group, Inc., 6.5%, 2014 91,000 87,360
Peabody Energy Corp., 6.875%, 2013 90,000 95,400
Phelps Dodge Corp., 8.75%, 2011 74,000 89,471
U.S. Steel Corp., 9.75%, 2010 67,000 72,360
- -----------------------------------------------------------------------------------------------------------------------
$ 369,904
- -----------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 6.5%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2017 - 2034 $ 909,939 $ 935,410
Fannie Mae, 5.5%, 2020 - 2034 1,314,083 1,344,493
Fannie Mae TBA, 5%, 2099 192,000 192,000
- -----------------------------------------------------------------------------------------------------------------------
$ 2,471,903
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $ 35,000 $ 38,392
CenterPoint Energy Resources Corp., 7.875%, 2013 192,000 228,064
El Paso Energy Corp., 7%, 2011 60,000 59,850
El Paso Energy Corp., 7.75%, 2013 110,000 117,425
Enterprise Products Operating LP, 6.375%, 2013 100,000 108,357
Southern Natural Gas Co., Inc., 8.875%, 2010 135,000 148,085
Williams Cos., Inc., 7.125%, 2011 205,000 221,400
- -----------------------------------------------------------------------------------------------------------------------
$ 921,573
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Petroleum Geo-Services A.S.A., 10%, 2010 $ 120,000 $ 134,400
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
Cenveo, Inc., 9.625%, 2012 $ 100,000 $ 108,000
Dex Media East LLC, 9.875%, 2009 100,000 110,250
Dex Media West LLC, 9.875%, 2013 142,000 161,880
Lighthouse International Co. S.A., 8%, 2014# EUR 80,000 99,855
MediaNews Group, Inc., 6.875%, 2013 $ 135,000 133,819
- -----------------------------------------------------------------------------------------------------------------------
$ 613,804
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 12.5%, 2012 $ 25,000 $ 29,250
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 54,000 $ 65,428
- -----------------------------------------------------------------------------------------------------------------------
Retailers - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 125,000 $ 131,250
Limited Brands, Inc., 5.25%, 2014 113,000 109,195
Rite Aid Corp., 9.25%, 2013 60,000 58,800
- -----------------------------------------------------------------------------------------------------------------------
$ 299,245
- -----------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $ 135,000 $ 139,050
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $ 84,000 $ 94,185
American Tower Corp., 7.125%, 2012 70,000 74,025
American Tower Escrow Corp., 0%, 2008 125,000 95,938
Centennial Communications Corp., 10.125%, 2013 195,000 220,350
Mobile TeleSystems OJSC, 9.75%, 2008# 101,000 108,575
Nextel Communications, Inc., 5.95%, 2014 195,000 202,556
Rogers Wireless, Inc., 7.5%, 2015 110,000 119,625
Rural Cellular Corp., 9.875%, 2010 110,000 113,575
U.S. Unwired, Inc., 10%, 2012 50,000 55,625
- -----------------------------------------------------------------------------------------------------------------------
$ 1,084,454
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 $ 168,000 $ 187,530
Deutsche Telekom International Finance B.V., 8%, 2010 58,000 67,218
Eircom Funding PLC, 8.25%, 2013 60,000 65,100
MCI, Inc., 8.735%, 2014 100,000 112,125
Qwest Services Corp., 13.5%, 2010 105,000 121,275
Telecom Italia S.p.A., 5.625%, 2007 EUR 96,000 121,780
Time Warner Telecom Holdings, Inc., 9.25%, 2014 $ 60,000 57,900
- -----------------------------------------------------------------------------------------------------------------------
$ 732,928
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
R. J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 114,000 $ 115,995
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2006 $ 190,000 $ 188,929
Fannie Mae, 4.25%, 2007 400,000 401,292
Small Business Administration, 6.35%, 2021 154,361 165,480
Small Business Administration, 4.99%, 2024 221,077 226,288
Small Business Administration, 4.625%, 2025 100,000 100,424
Small Business Administration, 4.86%, 2025 250,000 254,149
- -----------------------------------------------------------------------------------------------------------------------
$ 1,336,562
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.8%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.25%, 2008## $ 635,000 $ 627,087
U.S. Treasury Notes, 0.875%, 2010 75,997 74,120
U.S. Treasury Notes, 3%, 2012 86,566 95,080
U.S. Treasury Notes, 2%, 2014 366,413 377,563
U.S. Treasury Notes, 1.625%, 2015 272,049 271,061
- -----------------------------------------------------------------------------------------------------------------------
$ 1,444,911
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.2%
- -----------------------------------------------------------------------------------------------------------------------
AES Corp., 9%, 2015# $ 175,000 $ 196,438
Allegheny Energy Supply Co. LLC, 8.25%, 2012# 185,000 207,200
Beaver Valley Funding Corp., 9%, 2017 173,000 205,278
CMS Energy Corp., 8.5%, 2011 100,000 111,500
DPL, Inc., 6.875%, 2011 135,000 145,800
Duke Capital Corp., 8%, 2019 66,000 81,684
Dynegy Holdings, Inc., 9.875%, 2010# 80,000 88,400
Empresa Nacional de Electricidad S.A., 8.35%, 2013 50,000 58,072
Enersis S.A., 7.375%, 2014 136,000 146,791
MSW Energy Holdings LLC, 7.375%, 2010 70,000 71,750
NorthWestern Corp., 5.875%, 2014# 105,000 107,625
NRG Energy, Inc., 8%, 2013# 203,000 214,165
Texas Genco LLC, 6.875%, 2014# 180,000 189,450
TXU Corp., 5.55%, 2014# 155,000 150,323
- -----------------------------------------------------------------------------------------------------------------------
$ 1,974,476
- -----------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $36,270,369) $ 37,076,768
- -----------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Ford Motor Co. Capital Trust II, 6.5% (Identified Cost, $72,356) 1,380 $ 55,655
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stock - 0%
- -----------------------------------------------------------------------------------------------------------------------
Real Estate - 0%
- -----------------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", 8.75% (Identified Cost, $7,521) 275 $ 7,447
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.8%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $ 692,000 $ 692,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $37,042,246) $ 37,831,870
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.0% 366,604
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 38,198,474
- -----------------------------------------------------------------------------------------------------------------------
# SEC Rule 144A restriction.
## All or a portion of the security has been segregated as collateral for an open futures contract.
^ 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.
< The rate shown represents an annualized yield at time of purchase.
FRN = Floating Rate Note. The interest rate is the rate in effect as of period end.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other than the U.S.
dollar. A list of abbreviations is shown below.
AUD = Australian Dollar GBP = British Pound
CAD = Canadian Dollar NOK = Norwegian Krone
CHF = Swiss Franc NZD = New Zealand Dollar
DKK = Danish Krone
EUR = Euro
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $37,042,246) $37,831,870
Cash 13,951
Receivable for forward foreign currency exchange contracts 68,745
Receivable for series shares sold 29,967
Interest and dividends receivable 607,556
Other assets 249
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $38,552,338
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts $11,583
Payable for forward foreign currency exchange contracts subject to master netting
agreements 71,144
Payable for daily variation margin on open futures contracts 5,891
Payable for investments purchased 233,288
Payable for series shares reacquired 3,891
Payable to affiliates
Management fee 785
Shareholder servicing costs 164
Distribution fee 41
Administrative services fee 17
Accrued expenses and other liabilities 27,060
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $353,864
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $38,198,474
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $36,513,666
Unrealized appreciation on investments and translation of assets and liabilities
in foreign currencies 757,378
Accumulated undistributed net realized gain on investments and foreign currency
transactions 422,138
Accumulated undistributed net investment income 505,292
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $38,198,474
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,624,777
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $32,292,602 / 3,059,340 shares of beneficial interest outstanding) $10.56
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $5,905,872 / 565,437 shares of beneficial interest outstanding) $10.44
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses.
It also describes any gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Interest $1,175,411
Dividends 2,543
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $1,177,954
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $142,480
Distribution fee 6,500
Shareholder servicing costs 6,981
Administrative services fee 2,697
Trustees' compensation 691
Custodian fee 21,351
Printing 13,826
Auditing fees 27,209
Legal fees 1,065
Shareholder solicitation expenses 2,801
Miscellaneous 9,079
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $234,680
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (935)
Reduction of expenses by investment adviser (56,385)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $177,360
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $1,000,594
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $461,247
Futures contracts (84,952)
Foreign currency transactions 138,009
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $514,304
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(1,315,840)
Futures contracts 22,894
Translation of assets and liabilities in foreign currencies 158,828
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(1,134,118)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(619,814)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $380,780
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $1,000,594 $2,118,514
Net realized gain (loss) on investments and foreign currency transactions 514,304 1,337,331
Net unrealized gain (loss) on investments and foreign currency translation (1,134,118) (735,854)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $380,780 $2,719,991
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(2,203,761) $(1,839,639)
Service Class (361,504) (538,335)
From net realized gain on investments and foreign currency transactions
Initial Class (115,412) --
Service Class (19,697) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2,700,374) $(2,377,974)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $2,318,049 $(7,136,351)
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(1,545) $(6,794,334)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 38,200,019 44,994,353
At end of period (including accumulated undistributed net investment income of
$505,292 and $2,069,963, respectively) $38,198,474 $38,200,019
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED -------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $11.25 $11.02 $10.53 $10.09 $10.01 $10.03
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.29 $0.59 $0.55 $0.50 $0.50 $0.61
Net realized and unrealized gain (loss) on
investments and foreign currency (0.18) 0.22 0.51 0.32 (0.04) (0.15)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.11 $0.81 $1.06 $0.82 $0.46 $0.46
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.76) $(0.58) $(0.57) $(0.38) $(0.38) $(0.48)
From net realized gain on investments and
foreign currency transactions (0.04) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.80) $(0.58) $(0.57) $(0.38) $(0.38) $(0.48)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.56 $11.25 $11.02 $10.53 $10.09 $10.01
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&** 1.12++ 7.73 10.38 8.40 4.75 4.90
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.20+ 1.08 1.11 1.10 1.12 1.09
Expenses after expense reductions## 0.90+ 0.90 0.90 0.90 0.92 0.96
Net investment income(S) 5.31+ 5.41 5.16 4.85 4.99 6.21
Portfolio turnover 40 69 146 249 171 93
Net assets at end of period (000 Omitted) $32,293 $33,700 $35,888 $37,505 $47,484 $50,782
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ----------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $11.13 $10.91 $10.45 $10.03 $9.97 $9.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.27 $0.57 $0.52 $0.44 $0.45 $0.32
Net realized and unrealized gain (loss) on
investments and foreign currency (0.19) 0.21 0.50 0.36 (0.01) 0.18^
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.08 $0.78 $1.02 $0.80 $0.44 $0.50
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.73) $(0.56) $(0.56) $(0.38) $(0.38) $--
From net realized gain on investments and foreign
currency transactions (0.04) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.77) $(0.56) $(0.56) $(0.38) $(0.38) $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.44 $11.13 $10.91 $10.45 $10.03 $9.97
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&** 0.85++ 7.54 10.10 8.19 4.56 5.28++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.45+ 1.32 1.36 1.35 1.32 1.25+
Expenses after expense reductions## 1.15+ 1.14 1.15 1.15 1.12 1.12+
Net investment income(S) 5.08+ 5.01 4.86 4.50 4.64 6.57+
Portfolio turnover 40 69 146 249 171 93
Net assets at end of period (000 Omitted) $5,906 $4,500 $9,106 $3,390 $339 $10
- -------------------------------------------------------------------------------------------------------------------------------
* For the period from the Service Class inception, May 1, 2000, through December 31, 2000.
** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
(+) 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.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because of the
timing of sales of series shares and the amount of per share realized and unrealized gains and losses at such time.
(S) Effective January 1, 2001, the series adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing and accreting all premiums and discounts on debt securities. Per share data and ratios for
periods prior to January 1, 2001 have not been restated to reflect this change.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Variable Insurance Trust - MFS Strategic Income Series (the series) is a
non-diversified series of MFS Variable Insurance Trust (the trust). The trust
is organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The shareholders of each series of the trust are separate
accounts of insurance companies, which offer variable annuity and/or life
insurance products. As of June 30, 2005, there were 35 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) in the series' portfolio are valued at an evaluated
bid price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the series' portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the
extent there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Futures contracts are valued at
the settlement price as reported by an independent pricing service on the
primary exchange on which they are traded. Forward foreign currency contracts
are valued using spot rates and forward points as reported by an independent
pricing source. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the series' portfolio are valued at amortized cost, which
approximates market value as determined by the Board of Trustees. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
FUTURES CONTRACTS - The series may enter into futures contracts for the
delayed delivery of securities or currency, or contracts based on financial
indices at a fixed price on a future date. In entering such contracts, the
series is required to deposit with the broker, either in cash or securities,
an amount equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the series each day, depending on the daily
fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses by the series. The series'
investment in futures contracts is designed to hedge against anticipated
future changes in interest or exchange rates or securities prices. Investments
in interest rate futures for purposes other than hedging may be made to modify
the duration of the portfolio without incurring the additional transaction
costs involved in buying and selling the underlying securities. Investments in
currency futures for purposes other than hedging may be made to change the
series' relative position in one or more currencies without buying and selling
portfolio assets. Investments in equity index contracts or contracts on
related options for purposes other than hedging, may be made when the series
has cash on hand and wishes to participate in anticipated market appreciation
while the cash is being invested. Should interest or exchange rates or
securities prices move unexpectedly, the series may not achieve the
anticipated benefits of the futures contracts and may realize a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The series may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The series may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. The series may also use contracts in a manner
intended to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. For non-hedging purposes, the
series may enter into contracts with the intent of changing the relative
exposure of the series' portfolio of securities to different currencies to take
advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded as unrealized until the contract
settlement date. On contract settlement date, the gains or losses are recorded
as realized gains or losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
The series may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The series holds, and maintains until settlement date, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or
the series may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the series' other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities.
The series may enter into "TBA" (to be announced) sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. This amount, for the six months ended June 30, 2005,
is shown as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, straddle loss deferrals,
derivatives, wash sales, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $2,377,974 $2,408,613
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $2,564,253
Undistributed long-term capital gain1 34,125
Unrealized appreciation (depreciation) 1,983,006
Other temporary differences (676,982)
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the
series' operating expenses, exclusive of management, distribution, and certain
other fees and expenses, such that operating expenses do not exceed 0.15%
annually of the series' average daily net assets. This is reflected as a
reduction of total expenses in the Statement of Operations. This contractual
fee arrangement will continue until April 30, 2006, unless the series' Board
of Trustees consents to an earlier revision or termination of this agreement.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified
retirement and pension plans that invest in the series, and affiliates of
these participating insurance companies and plan sponsors) in connection with
the sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $6,686, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $236.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0142% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons, and pays no compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $88, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $4,104,837 $2,783,481
------------------------------------------------------------
Investments (non-U.S. government
securities) $12,898,004 $12,036,909
------------------------------------------------------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $37,177,511
------------------------------------------------------
Gross unrealized appreciation $1,110,079
Gross unrealized depreciation (455,720)
------------------------------------------------------
Net unrealized appreciation (depreciation) $654,359
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 256,324 $2,809,918 604,373 $6,619,896
Shares issued to shareholders in reinvestment
of distributions 224,075 2,319,173 175,706 1,839,639
Shares reacquired (415,770) (4,541,318) (1,041,132) (11,244,960)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change 64,629 $587,773 (261,053) $(2,785,425)
SERVICE CLASS SHARES
Shares sold 154,848 $1,680,142 295,864 $3,199,156
Shares issued to shareholders in reinvestment
of distributions 37,190 381,201 51,913 538,335
Shares reacquired (31,060) (331,067) (777,967) (8,088,417)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change 160,978 $1,730,276 (430,190) $(4,350,926)
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $128, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
(7) FINANCIAL INSTRUMENTS
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts and
futures contracts. The notional or contractual amounts of these instruments
represent the investment the series has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
NET
IN UNREALIZED
CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
SALES
8/08/05 AUD 145,000 $108,750 $110,106 $(1,356)
8/08/05 - 8/24/05 EUR 3,099,667 3,785,706 3,752,796 32,910
7/06/05 - 9/06/05 GBP 627,858 1,157,134 1,123,442 33,692
8/08/05 NZD 824,944 573,955 571,999 1,956
---------- ---------- -------
$5,625,545 $5,558,343 $67,202
========== ========== =======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASES
7/06/05 AUD 23,938 $18,027 $18,214 $187
9/07/05 CHF 237,056 190,132 185,700 (4,432)
7/11/05 DKK 33,657 5,864 5,461 (403)
8/08/05 - 8/24/05 EUR 269,858 330,013 326,720 (3,293)
7/06/05 GBP 313,929 562,759 562,277 (482)
7/07/05 NOK 806,106 124,856 123,239 (1,617)
---------- ---------- -------
$1,231,651 $1,221,611 $(10,040)
========== ========== ========
- --------------------------------------------------------------------------------
At June 30, 2005, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $71,144 with
Merrill Lynch International.
At June 30, 2005, the series had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
U.S. Treasury Notes
10 Year Futures September 2005 29 Short $(10,768)
At June 30, 2005, the series had sufficient cash and/or securities to cover
any margin requirements under these contracts.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Strategic Income Series, which was
held on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
--------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VWG-SEM 8/05 4M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) INVESTORS GROWTH STOCK SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) INVESTORS GROWTH STOCK SERIES
Objective: Seeks to provide long-term growth of capital and future income
rather than current income.
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 10
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 15
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 19
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 19
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 19
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 96.7%
Cash & Other Net Assets 3.3%
TOP TEN HOLDINGS
Microsoft Corp. 3.4%
------------------------------------------------
Cisco Systems, Inc. 3.4%
------------------------------------------------
Johnson & Johnson 3.4%
------------------------------------------------
Wyeth 2.8%
------------------------------------------------
Amgen, Inc. 2.6%
------------------------------------------------
Dell, Inc. 2.5%
------------------------------------------------
Oracle Corp. 2.4%
------------------------------------------------
Abbott Laboratories 2.1%
------------------------------------------------
Wal-Mart Stores, Inc. 1.9%
------------------------------------------------
Eli Lilly & Co. 1.8%
------------------------------------------------
SECTOR WEIGHTINGS
Technology 28.9%
------------------------------------------------
Health Care 25.2%
------------------------------------------------
Retailing 11.2%
------------------------------------------------
Leisure 6.9%
------------------------------------------------
Consumer Staples 5.3%
------------------------------------------------
Financial Services 5.2%
------------------------------------------------
Industrial Goods & Services 4.7%
------------------------------------------------
Energy 2.3%
------------------------------------------------
Special Products & Services 2.3%
------------------------------------------------
Basic Materials 1.7%
------------------------------------------------
Transportation 1.1%
------------------------------------------------
Utilities & Communications 1.1%
------------------------------------------------
Autos & Housing 0.8%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.91% $1,000.00 $978.40 $4.46
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.91% $1,000.00 $1,020.28 $4.56
- -------------------------------------------------------------------------------
Actual 1.16% $1,000.00 $976.90 $5.69
Service -----------------------------------------------------------------------
Class Hypothetical* 1.16% $1,000.00 $1,019.04 $5.81
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 96.7%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 15,040 $ 975,645
Northrop Grumman Corp. 21,700 1,198,925
United Technologies Corp. 63,200 3,245,320
- -----------------------------------------------------------------------------------------------------------------------
$ 5,419,890
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A 5,900 $ 453,803
Nike, Inc., "B" 29,100 2,520,060
Polo Ralph Lauren Corp., "A"^ 4,080 175,889
Reebok International Ltd.^ 33,640 1,407,161
- -----------------------------------------------------------------------------------------------------------------------
$ 4,556,913
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Harley-Davidson, Inc. 42,020 $ 2,084,192
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.6%
- -----------------------------------------------------------------------------------------------------------------------
American Express Co. 37,850 $ 2,014,756
Citigroup, Inc. 61,410 2,838,984
Countrywide Financial Corp. 56,960 2,199,226
SLM Corp. 89,880 4,565,904
- -----------------------------------------------------------------------------------------------------------------------
$ 11,618,870
- -----------------------------------------------------------------------------------------------------------------------
Biotechnology - 5.1%
- -----------------------------------------------------------------------------------------------------------------------
Amgen, Inc.* 192,420 $ 11,633,713
Biogen Idec, Inc.* 35,120 1,209,884
Genzyme Corp.* 79,860 4,798,787
Gilead Sciences, Inc.* 85,170 3,746,628
ImClone Systems, Inc.^* 26,410 817,918
MedImmune, Inc.* 21,960 586,771
- -----------------------------------------------------------------------------------------------------------------------
$ 22,793,701
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.4%
- -----------------------------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 49,330 $ 564,829
Comcast Corp., "A"* 100,314 3,079,640
EchoStar Communications Corp., "A"* 31,180 940,077
Grupo Televisa S.A., ADR 28,680 1,780,741
News Corp., "A" 92,930 1,503,607
Time Warner, Inc.* 84,480 1,411,661
Univision Communications, Inc., "A"* 65,690 1,809,759
Viacom, Inc., "B" 71,060 2,275,341
Walt Disney Co. 68,440 1,723,319
XM Satellite Radio Holdings, Inc., "A"* 2,600 87,516
- -----------------------------------------------------------------------------------------------------------------------
$ 15,176,490
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Chicago Mercantile Exchange Holdings, Inc.^ 3,400 $ 1,004,700
Goldman Sachs Group, Inc. 17,940 1,830,239
Legg Mason, Inc. 6,710 698,578
Mellon Financial Corp. 15,400 441,826
Merrill Lynch & Co., Inc. 10,870 597,959
- -----------------------------------------------------------------------------------------------------------------------
$ 4,573,302
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 211,600 $ 4,796,972
Fiserv, Inc.* 25,970 1,115,412
Getty Images, Inc.* 7,290 541,355
- -----------------------------------------------------------------------------------------------------------------------
$ 6,453,739
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
3M Co. 28,410 $ 2,054,043
Monsanto Co. 41,030 2,579,556
- -----------------------------------------------------------------------------------------------------------------------
$ 4,633,599
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 9.9%
- -----------------------------------------------------------------------------------------------------------------------
Amdocs Ltd.* 189,730 $ 5,014,564
Check Point Software Technologies Ltd.* 24,980 494,604
Citrix Systems, Inc.* 12,720 275,515
Mercury Interactive Corp.* 99,390 3,812,600
Microsoft Corp. 616,750 15,320,070
NAVTEQ Corp.* 17,000 632,060
Oracle Corp.* 801,700 10,582,440
Symantec Corp.* 254,470 5,532,178
VERITAS Software Corp.* 103,110 2,515,884
- -----------------------------------------------------------------------------------------------------------------------
$ 44,179,915
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
Apple Computer, Inc.* 23,300 $ 857,673
CDW Corp.^ 26,770 1,528,299
Dell, Inc.* 282,200 11,149,722
Infosys Technologies Ltd., ADR 10,160 787,095
International Business Machines Corp. 7,300 541,660
LG.Philips LCD Co. Ltd., ADR^* 32,500 742,950
- -----------------------------------------------------------------------------------------------------------------------
$ 15,607,399
- -----------------------------------------------------------------------------------------------------------------------
Construction - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
KB Home 3,600 $ 274,428
Pulte Homes, Inc. 2,900 244,325
- -----------------------------------------------------------------------------------------------------------------------
$ 518,753
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
Apollo Group, Inc., "A"^* 12,790 $ 1,000,434
Avon Products, Inc. 67,140 2,541,249
Career Education Corp.* 15,210 556,838
Cintas Corp. 35,570 1,373,002
Colgate-Palmolive Co. 21,600 1,078,056
Fortune Brands, Inc.^ 2,000 177,600
Gillette Co. 35,750 1,810,023
Procter & Gamble Co. 98,720 5,207,480
Reckitt Benckiser PLC 61,740 1,813,833
- -----------------------------------------------------------------------------------------------------------------------
$ 15,558,515
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Cooper Industries Ltd., "A" 10,400 $ 664,560
Emerson Electric Co. 10,330 646,968
General Electric Co. 162,900 5,644,485
Tyco International Ltd. 186,740 5,452,808
- -----------------------------------------------------------------------------------------------------------------------
$ 12,408,821
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 5.1%
- -----------------------------------------------------------------------------------------------------------------------
Amphenol Corp., "A" 11,560 $ 464,365
Analog Devices, Inc. 123,260 4,598,831
Broadcom Corp., "A"* 6,000 213,060
Intel Corp. 40,800 1,063,248
KLA-Tencor Corp. 23,360 1,020,832
Linear Technology Corp. 5,580 204,730
Marvell Technology Group Ltd.* 68,570 2,608,403
PMC-Sierra, Inc.* 98,540 919,378
Samsung Electronics Co. Ltd. 4,330 2,051,522
Samsung Electronics Co. Ltd., GDR## 7,560 1,808,730
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 200,154 1,825,404
Texas Instruments, Inc. 119,770 3,361,944
Xilinx, Inc. 92,230 2,351,865
- -----------------------------------------------------------------------------------------------------------------------
$ 22,492,312
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Arch Coal, Inc.^ 5,760 $ 313,747
EOG Resources, Inc. 14,000 795,200
Massey Energy Co.^ 7,610 287,049
- -----------------------------------------------------------------------------------------------------------------------
$ 1,395,996
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp. 7,000 $ 745,570
- -----------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.4%
- -----------------------------------------------------------------------------------------------------------------------
CVS Corp. 215,560 $ 6,266,329
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
Groupe Danone 3,440 $ 301,300
Kellogg Co. 40,100 1,782,044
PepsiCo, Inc. 144,320 7,783,178
SYSCO Corp.^ 27,440 993,054
- -----------------------------------------------------------------------------------------------------------------------
$ 10,859,576
- -----------------------------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Harman International Industries, Inc. 11,100 $ 903,096
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Carnival Corp. 62,050 $ 3,384,828
Harrah's Entertainment, Inc. 15,100 1,088,257
Royal Caribbean Cruises Ltd.^ 12,470 603,049
- -----------------------------------------------------------------------------------------------------------------------
$ 5,076,134
- -----------------------------------------------------------------------------------------------------------------------
General Merchandise - 4.7%
- -----------------------------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 33,790 $ 881,919
Kohl's Corp.* 106,770 5,969,511
Target Corp. 106,040 5,769,636
Wal-Mart Stores, Inc. 174,420 8,407,044
- -----------------------------------------------------------------------------------------------------------------------
$ 21,028,110
- -----------------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
UnitedHealth Group, Inc. 4,300 $ 224,202
WellPoint, Inc.* 55,060 3,834,378
- -----------------------------------------------------------------------------------------------------------------------
$ 4,058,580
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 1.6%
- -----------------------------------------------------------------------------------------------------------------------
AFLAC, Inc. 35,410 $ 1,532,545
American International Group, Inc. 78,620 4,567,822
St. Paul Travelers Cos., Inc.^ 26,050 1,029,756
- -----------------------------------------------------------------------------------------------------------------------
$ 7,130,123
- -----------------------------------------------------------------------------------------------------------------------
Internet - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Amazon.com, Inc.^* 12,130 $ 401,260
eBay, Inc.* 66,240 2,186,582
Google, Inc., "A"* 3,000 882,450
IAC/InterActiveCorp^* 44,650 1,073,833
Yahoo!, Inc.* 117,730 4,079,344
- -----------------------------------------------------------------------------------------------------------------------
$ 8,623,469
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Activision, Inc.* 25,396 $ 419,542
Electronic Arts, Inc.* 111,000 6,283,710
- -----------------------------------------------------------------------------------------------------------------------
$ 6,703,252
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc. 15,190 $ 1,447,759
Illinois Tool Works, Inc. 22,360 1,781,645
- -----------------------------------------------------------------------------------------------------------------------
$ 3,229,404
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Caremark Rx, Inc.* 43,160 $ 1,921,483
Cerner Corp.^* 8,500 577,745
Community Health Systems, Inc.* 26,410 998,034
HCA, Inc. 20,150 1,141,901
- -----------------------------------------------------------------------------------------------------------------------
$ 4,639,163
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 5.0%
- -----------------------------------------------------------------------------------------------------------------------
Alcon, Inc. 5,000 $ 546,750
Boston Scientific Corp.* 21,840 589,680
C.R. Bard, Inc. 7,900 525,429
Fisher Scientific International, Inc.^* 67,270 4,365,823
Medtronic, Inc. 109,850 5,689,132
St. Jude Medical, Inc.* 125,860 5,488,755
Varian Medical Systems, Inc.* 28,600 1,067,638
Waters Corp.* 26,650 990,581
Zimmer Holdings, Inc.* 38,200 2,909,694
- -----------------------------------------------------------------------------------------------------------------------
$ 22,173,482
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
BHP Billiton Ltd., ADR^ 6,600 $ 180,180
Companhia Vale do Rio Doce, ADR 15,750 461,160
- -----------------------------------------------------------------------------------------------------------------------
$ 641,340
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
BJ Services Co. 9,120 $ 478,618
GlobalSantaFe Corp. 49,380 2,014,704
Halliburton Co. 80,260 3,838,033
Noble Corp. 27,200 1,673,072
Smith International, Inc. 7,700 490,490
Tenaris S.A., ADR^ 3,920 306,818
- -----------------------------------------------------------------------------------------------------------------------
$ 8,801,735
- -----------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
EMC Corp.* 534,650 $ 7,330,052
Lexmark International, Inc., "A"* 19,600 1,270,668
Network Appliance, Inc.* 71,330 2,016,499
- -----------------------------------------------------------------------------------------------------------------------
$ 10,617,219
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 13.2%
- -----------------------------------------------------------------------------------------------------------------------
Abbott Laboratories 193,780 $ 9,497,158
Allergan, Inc. 41,070 3,500,807
Eli Lilly & Co. 146,580 8,165,972
Johnson & Johnson 232,360 15,103,400
Roche Holding AG 54,060 6,808,180
Sanofi-Aventis^ 15,300 1,251,296
Teva Pharmaceutical Industries Ltd., ADR 62,600 1,949,364
Wyeth 279,120 12,420,840
- -----------------------------------------------------------------------------------------------------------------------
$ 58,697,017
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. 15,440 $ 683,220
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 72,980 $ 3,301,615
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Praxair, Inc. 48,500 $ 2,260,100
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Aeropostale, Inc.* 24,600 $ 826,560
Bed Bath & Beyond, Inc.* 15,800 660,124
Best Buy Co., Inc. 31,270 2,143,559
CarMax, Inc.^* 21,400 570,310
Home Depot, Inc. 36,310 1,412,459
Lowe's Cos., Inc. 126,820 7,383,460
PETsMART, Inc. 97,260 2,951,841
Staples, Inc. 39,155 834,785
TJX Cos., Inc. 65,490 1,594,681
- -----------------------------------------------------------------------------------------------------------------------
$ 18,377,779
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR, "L"^ 33,860 $ 2,018,395
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 6.1%
- -----------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 793,430 $ 15,162,447
Comverse Technology, Inc.* 60,600 1,433,190
Corning, Inc.* 351,310 5,838,772
NeuStar, Inc., "A"* 370 9,472
QUALCOMM, Inc. 140,980 4,653,750
- -----------------------------------------------------------------------------------------------------------------------
$ 27,097,631
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Sprint Corp. 109,630 $ 2,750,617
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Expeditors International of Washington, Inc. 11,500 $ 572,815
FedEx Corp. 41,190 3,336,802
United Parcel Service, Inc., "B" 16,940 1,171,570
- -----------------------------------------------------------------------------------------------------------------------
$ 5,081,187
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $414,590,500) $431,236,550
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 18,354,935 $ 18,354,935
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreement - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 3.35%, dated 6/30/05, due 7/01/05, total to be received $17,603,638
(secured by various U.S. Treasury and Federal Agency obligations in a jointly traded
account), at Cost $17,602,000 $ 17,602,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $450,547,435)(S) $467,193,485
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (4.8)% (21,434,835)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $445,758,650
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
## SEC Rule 144A restriction.
(S) As of June 30, 2005, the series had six securities representing $12,679,934 and 2.8% of net assets that were
fair valued in accordance with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt.
GDR = Global Depository Receipt.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $17,937,997 of securities on loan
(identified cost, $450,547,435) $467,193,485
Cash 758
Receivable for investments sold 4,891,695
Receivable for series shares sold 125,001
Interest and dividends receivable 172,621
Receivable from investment adviser 189,640
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $472,573,200
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $7,318,765
Payable for series shares reacquired 1,015,291
Collateral for securities loaned, at value 18,354,935
Payable to affiliates
Management fee 9,352
Shareholder servicing costs 699
Distribution fee 1,886
Administrative services fee 169
Accrued expenses and other liabilities 113,453
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $26,814,550
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $445,758,650
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $504,833,194
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 16,645,986
Accumulated net realized gain (loss) on investments and foreign currency
transactions (75,606,599)
Accumulated net investment loss (113,931)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $445,758,650
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 48,585,185
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $175,122,610 / 18,884,722 shares of beneficial interest
outstanding) $9.27
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $270,636,040 / 29,700,463 shares of beneficial interest
outstanding) $9.11
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses. It also describes any gains
and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT LOSS
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $2,066,300
Interest 213,521
Foreign taxes withheld (30,122)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $2,249,699
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,709,115
Distribution fee 324,913
Shareholder servicing costs 80,408
Administrative services fee 32,261
Trustees' compensation 5,738
Custodian fee 93,273
Printing 47,709
Postage 628
Auditing fees 21,754
Legal fees 7,252
Shareholder solicitation expenses 52,874
Miscellaneous 11,634
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $2,387,559
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (23,816)
Reduction of expenses by investment adviser (1,058)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $2,362,685
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(112,986)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $14,849,466
Foreign currency transactions (14,493)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $14,834,973
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(26,441,185)
Translation of assets and liabilities in foreign currencies (605)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(26,441,790)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(11,606,817)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(11,719,803)
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $(112,986) $1,111,600
Net realized gain (loss) on investments and foreign currency transactions 14,834,973 16,378,298
Net unrealized gain (loss) on investments and foreign currency translation (26,441,790) 21,786,620
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $(11,719,803) $39,276,518
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(726,465) $--
Service Class (384,042) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(1,110,507) $--
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(20,139,159) $33,320,035
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(32,969,469) $72,596,553
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 478,728,119 406,131,566
At end of period (including accumulated net investment loss of $113,931 and
accumulated undistributed net investment income of $1,109,562, respectively) $445,758,650 $478,728,119
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series'
financial performance for the semiannual period and the past 5 fiscal years
(or, if shorter, the period of the series' operation). Certain information
reflects financial results for a single series share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on
an investment in the series (assuming reinvestment of all distributions) held
for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ----------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $9.51 $8.71 $7.08 $9.77 $13.00 $13.95
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $0.00+++ $0.03 $0.00+++ $(0.00)+++ $0.01 $0.04
Net realized and unrealized gain (loss) on
investments and foreign currency (0.21) 0.77 1.63 (2.69) (3.14) (0.89)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.21) $0.80 $1.63 $(2.69) $(3.13) $(0.85)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.03) $-- $-- $-- $(0.01) $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.09) (0.10)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.03) $-- $-- $-- $(0.10) $(0.10)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.27 $9.51 $8.71 $7.08 $9.77 $13.00
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (2.16)++*** 9.18+*** 23.02 (27.53) (24.14) (6.17)***
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.91+ 0.86 0.88 0.88 0.91 0.94
Expenses after expense reductions## 0.91+ 0.86 0.88 0.88 0.92^^ 0.93
Net investment income (loss) 0.09+ 0.37 0.04 (0.03) 0.07 0.28
Portfolio turnover 60 144 253 214 265 248
Net assets at end of period (000 Omitted) $175,123 $217,934 $199,674 120,593 $147,280 $97,766
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ------------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $9.34 $8.57 $6.99 $9.66 $12.98 $14.27
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $(0.01) $0.01 $(0.02) $(0.02) $(0.01) $0.01
Net realized and unrealized gain (loss) on
investments and foreign currency (0.21) 0.76 1.60 (2.65) (3.21) (1.30)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.22) $0.77 $1.58 $(2.67) $(3.22) $(1.29)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.01) $-- $-- $-- $(0.01) $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.09) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.01) $-- $-- $-- $(0.10) $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.11 $9.34 $8.57 $6.99 $9.66 $12.98
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& (2.31)++*** 8.98+*** 22.60 (27.71) (24.83) (9.04)++***
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------
Expenses before expense reductions## 1.16+ 1.11 1.13 1.11 1.12 1.12+
Expenses after expense reductions## 1.16+ 1.11 1.13 1.11 1.13^^ 1.11+
Net investment income (loss) (0.15)+ 0.15 (0.21) (0.25) (0.15) 0.15+
Portfolio turnover 60 144 253 214 265 248
Net assets at end of period (000 Omitted) $270,636 $260,794 $206,458 $123,043 $122,857 $53,492
- ------------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, May 1, 2000 (Service Class) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense
reimbursement agreement.
+ The series' net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The
non-recurring accrual did not have a material impact on the net asset value per share based on the shares outstanding on
the day the proceeds were recorded.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Investors Growth Stock Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies, which offer variable annuity and/or life insurance products. As of
June 30, 2005, there were 52 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Money market mutual funds are valued at net asset value. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon
current exchange rates. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on 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.
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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005, the series' custodian fees
were reduced by $10,654 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of
the series. For the six months ended June 30, 2005, the series' miscellaneous
expenses were reduced by $13,162 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, wash sales, and non-taxable
distributions.
The series paid no distributions for the years ended December 31, 2004 and
December 31, 2003.
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,109,562
Capital loss carryforward (75,867,202)
Unrealized appreciation (depreciation) 28,518,480
Other temporary differences (5,074)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on December 31, 2009,
($14,413,014) and December 31, 2010, ($61,454,188).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with MFS
to provide overall investment advisory and administrative services, and
general office facilities. The management fee is computed daily and paid
monthly at an annual rate of 0.75% of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified retirement
and pension plans that invest in the series, and affiliates of these
participating insurance companies and plan sponsors) in connection with the
sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $79,759, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $555.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0142% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to Tarantino
LLC in the amount of $1,058, which is shown as a reduction of total expenses in
the Statement of Operations. Additionally, MFS has agreed to bear all expenses
associated with office space, other administrative support, and supplies
provided to the ICCO. The funds can terminate the Agreement with Tarantino LLC
at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. On July 28, 2004, the series accrued an estimate
of the amount to be received pursuant to this matter in the amount of
$224,255, which did not have a material impact on the net asset value per
share based on the shares outstanding on the day the proceeds were recorded.
The proceeds were paid to the series on February 16, 2005.
The receivable from investment adviser represents certain expenses to be
reimbursed to the series as a result of an expense adjustment.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$265,371,369 and $285,781,530, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $465,121,805
----------------------------------------------------
Gross unrealized appreciation $13,659,813
Gross unrealized depreciation (11,588,133)
----------------------------------------------------
Net unrealized appreciation
(depreciation) $2,071,680
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 611,233 $5,655,954 3,133,885 $27,718,699
Shares issued to shareholders in reinvestment
of distributions 82,459 726,465 -- --
Shares reacquired (4,725,698) (42,478,000) (3,154,202) (27,709,618)
- -------------------------------------------------------------------------------------------------------------------------------
Net change (4,032,006) $(36,095,581) (20,317) $9,081
SERVICE CLASS SHARES
Shares sold 2,776,970 $25,116,163 5,833,247 $50,556,455
Shares issued to shareholders in reinvestment
of distributions 44,346 384,042 -- --
Shares reacquired (1,056,178) (9,543,783) (1,996,610) (17,245,501)
- -------------------------------------------------------------------------------------------------------------------------------
Net change 1,765,138 $15,956,422 3,836,637 $33,310,954
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $1,601, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Investors Growth Stock Series,
which was held on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- -------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- -------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- -------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- -------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- -------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- -------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- -------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- -------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- -------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- -------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- -------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VGS-SEM 8/05 41M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) UTILITIES SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) UTILITIES SERIES
Objective: Seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
TABLE OF CONTENTS
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 8
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 13
- ------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 18
- ------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 18
- ------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 18
- ------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Stocks 85.1%
Bonds 7.0%
Cash & Other Net Assets 4.9%
Convertibles 2.4%
Preferred 0.6%
TOP TEN HOLDINGS
Sprint Corp. 3.5%
------------------------------------------------
Exelon Corp. 3.4%
------------------------------------------------
PPL Corp. 3.1%
------------------------------------------------
NRG Energy, Inc. 3.1%
------------------------------------------------
AES Corp. 3.0%
------------------------------------------------
Sempra Energy 2.9%
------------------------------------------------
Vodafone Group PLC 2.1%
------------------------------------------------
Enagas S.A. 2.0%
------------------------------------------------
Entergy Corp. 1.9%
------------------------------------------------
Edison International 1.8%
------------------------------------------------
SECTOR WEIGHTINGS
Utilities - Communications 66.3%
------------------------------------------------
Leisure 10.7%
------------------------------------------------
Energy 8.1%
------------------------------------------------
COUNTRY WEIGHTINGS*
United States 71.4%
------------------------------------------------
Great Britain 4.2%
------------------------------------------------
Spain 4.1%
------------------------------------------------
Mexico 3.4%
------------------------------------------------
Germany 3.4%
------------------------------------------------
France 2.9%
------------------------------------------------
Canada 2.3%
------------------------------------------------
Chile 1.5%
------------------------------------------------
Brazil 1.5%
------------------------------------------------
Other Countries 5.3%
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest on bonds and the equivalent exposure from any
derivative holdings, if applicable.
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.91% $1,000.00 $1,082.30 $4.70
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.91% $1,000.00 $1,020.28 $4.56
- -------------------------------------------------------------------------------
Actual 1.17% $1,000.00 $1,081.10 $6.04
Service -----------------------------------------------------------------------
Class Hypothetical* 1.17% $1,000.00 $1,018.99 $5.86
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 85.1%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 10.3%
- -----------------------------------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 387,500 $ 4,436,875
Comcast Corp., "Special A"* 349,500 10,467,525
Grupo Televisa S.A., ADR 178,600 11,089,274
News Corp., "A" 706,500 11,431,170
NTL, Inc.* 84,500 5,781,490
R.H. Donnelley Corp.* 119,100 7,381,818
Radio One, Inc., "A"^* 117,800 1,499,594
Radio One, Inc., "D"* 239,000 3,052,030
Rogers Communications, Inc., "B"* 11,300 370,130
Time Warner, Inc.* 659,400 11,018,574
TV Azteca S.A. de C.V., ADR^ 773,800 5,911,832
Viacom, Inc., "B" 328,120 10,506,402
- -----------------------------------------------------------------------------------------------------------------------
$ 82,946,714
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Total S.A 23,200 $ 5,427,412
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 11.3%
- -----------------------------------------------------------------------------------------------------------------------
AGL Resources, Inc.^ 288,310 $ 11,143,181
Equitable Resources, Inc.^ 60,200 4,093,600
MDU Resources Group, Inc.^ 448,740 12,641,006
Northwestern Corp.^ 369,178 11,636,491
ONEOK, Inc.^ 189,800 6,196,970
Questar Corp.^ 146,870 9,678,733
Rosetta Resources, Inc.##* 431,180 6,924,406
Sempra Energy 565,300 23,352,543
Southern Union Co. 196,100 4,814,255
- -----------------------------------------------------------------------------------------------------------------------
$ 90,481,185
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 4.3%
- -----------------------------------------------------------------------------------------------------------------------
El Paso Corp.^ 867,400 $ 9,992,448
Enagas S.A 925,400 16,322,705
Williams Cos., Inc.^ 416,000 7,904,000
- -----------------------------------------------------------------------------------------------------------------------
$ 34,219,153
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 4.3%
- -----------------------------------------------------------------------------------------------------------------------
ENSCO International, Inc. 53,600 $ 1,916,200
GlobalSantaFe Corp. 155,700 6,352,560
Halliburton Co. 288,600 13,800,852
Noble Corp. 47,200 2,903,272
Pride International, Inc.* 184,300 4,736,510
Tenaris S.A., ADR 65,600 5,134,512
- -----------------------------------------------------------------------------------------------------------------------
$ 34,843,906
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Lamar Advertising Co., "A"* 69,200 $ 2,959,684
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 3.4%
- -----------------------------------------------------------------------------------------------------------------------
America Movil S.A. de C.V., ADR, "L" 178,700 $ 10,652,307
Vodafone Group PLC 6,920,376 16,813,970
- -----------------------------------------------------------------------------------------------------------------------
$ 27,466,277
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
AFK Sistema, GDR## 216,970 $ 3,558,308
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 15.5%
- -----------------------------------------------------------------------------------------------------------------------
BellSouth Corp.^ 175,200 $ 4,655,064
Bharti Tele-Ventures Ltd.* 66,700 372,584
CenturyTel, Inc. 113,200 3,920,116
Citizens Communications Co. 924,100 12,419,904
Compania de Telecomunicaciones de Chile S.A., ADR^ 367,600 3,738,492
Deutsche Telekom AG 395,400 7,299,705
FastWeb S.p.A.* 166,617 7,164,042
France Telecom S.A 294,770 8,609,357
KT Freetel Co. Ltd. 205,400 4,746,569
SBC Communications, Inc. 197,300 4,685,875
Singapore Telecommunications Ltd. 4,500,000 7,397,626
Sprint Corp. 1,109,500 27,837,355
Telecom Corp. of New Zealand Ltd. 1,478,764 6,179,339
Telefonica S.A 774,764 12,637,081
Telus Corp. 60,590 2,125,809
Telus Corp. (Non Voting) 294,760 10,036,682
- -----------------------------------------------------------------------------------------------------------------------
$123,825,600
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 34.5%
- -----------------------------------------------------------------------------------------------------------------------
AES Corp.* 1,477,300 $ 24,198,174
Allegheny Energy, Inc.* 14,400 363,168
Avista Corp. 120,700 2,243,813
AWG PLC 195,200 3,351,785
CMS Energy Corp.* 171,970 2,589,868
Constellation Energy Group, Inc. 176,850 10,202,476
CPFL Energia S.A., ADR^ 285,980 6,777,726
Dominion Resources, Inc. 136,110 9,989,113
DTE Energy Co.^ 173,900 8,133,303
E.ON AG 145,600 12,913,033
Edison International 350,100 14,196,555
Endesa S.A 147,600 3,450,920
Enel S.p.A 418,000 3,629,327
Enersis S.A., ADR 476,100 4,970,484
Entergy Corp. 202,860 15,326,073
Exelon Corp. 531,300 27,271,629
Fortum Corp. 255,240 4,088,417
FPL Group, Inc. 25,900 1,089,354
International Power PLC 2,354,000 8,687,421
NRG Energy, Inc.* 653,000 24,552,800
PG&E Corp. 353,890 13,285,031
PPL Corp.^ 417,150 24,770,367
Public Service Enterprise Group, Inc. 6,200 377,084
Red Electrica de Espana S.A 19,600 540,992
Reliant Energy, Inc.* 830,000 10,275,400
RWE AG 115,400 7,409,357
SCANA Corp.^ 148,100 6,325,351
Severn Trent PLC 284,800 5,174,737
Suez S.A 333,700 9,016,067
TXU Corp. 130,960 10,881,466
- -----------------------------------------------------------------------------------------------------------------------
$276,081,291
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $589,839,796) $681,809,530
- -----------------------------------------------------------------------------------------------------------------------
Bonds - 6.9%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 0%
- -----------------------------------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, FRN, 3.4063%, 2023##^^ $ 631,991 $ 79,622
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0%
- -----------------------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.5%, 2013 $ 89,000 $ 93,586
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 $ 315,000 $ 341,775
Chesapeake Energy Corp., 6.375%, 2015## 5,125,000 5,253,125
- -----------------------------------------------------------------------------------------------------------------------
$ 5,594,900
- -----------------------------------------------------------------------------------------------------------------------
Oils - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 3,500,000 $ 3,832,500
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Rogers Wireless, Inc., 6.375%, 2014 $ 3,420,000 $ 3,479,850
Rogers Wireless, Inc., 8%, 2012 1,820,000 1,961,050
- -----------------------------------------------------------------------------------------------------------------------
$ 5,440,900
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.0%
- -----------------------------------------------------------------------------------------------------------------------
AES Corp., 8.875%, 2011 $ 2,941,000 $ 3,279,215
Allegheny Energy Supply Co. LLC, 8.25%, 2012## 6,410,000 7,179,200
Beaver Valley Funding Corp., 9%, 2017 737,000 874,509
CMS Energy Corp., 8.5%, 2011 2,840,000 3,166,600
Empresa Nacional de Electricidad S.A., 8.35%, 2013 944,000 1,096,397
Enersis S.A., 7.375%, 2014 1,947,000 2,101,491
NRG Energy, Inc., 8%, 2013## 7,216,000 7,612,880
PSEG Energy Holdings LLC, 8.625%, 2008 3,158,000 3,355,375
PSEG Energy Holdings LLC, 7.75%, 2007 78,000 80,535
Texas Genco LLC, 6.875%, 2014## 4,115,000 4,331,037
TXU Corp., 6.5%, 2024## 7,422,000 7,270,161
TXU Eastern Funding Co., 6.75%, 2009** 16,000 2,760
- -----------------------------------------------------------------------------------------------------------------------
$ 40,350,160
- -----------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $54,836,590) $ 55,391,668
- -----------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Southern Union Co., 5% 34,300 $ 1,738,667
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
El Paso Corp., 4.99%## 7,100 $ 7,566,825
Williams Cos., Inc., 5.5%^ 11,650 1,060,150
- -----------------------------------------------------------------------------------------------------------------------
$ 8,626,975
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
NRG Energy, Inc., 4%## 820 $ 898,617
PNM Resources, Inc., 6.75% 150,400 $ 8,052,416
- -----------------------------------------------------------------------------------------------------------------------
$ 8,951,033
- -----------------------------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $18,072,731) $ 19,316,675
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stock - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
AES Tiete S.A. (Identified Cost, $4,530,252) 275,924,900 $ 4,937,727
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation# - 4.0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.4%, due 7/01/05, at Amortized Cost $31,847,000 $ 31,847,000
- -----------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 7.4%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and Net Asset Value 58,913,098 $ 58,913,098
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreement - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 3.35%, dated 6/30/05, due 7/01/05, total to be received $10,543,981
(secured by various U.S. Treasury and Federal Agency obligations in a jointly traded
account), at Cost $10,543,000 $ 10,543,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $768,582,467)(S) $862,758,698
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (7.7)% (61,379,478)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $801,379,220
- -----------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non income producing security - in default.
# The rate shown represents an annualized yield at time of purchase.
## SEC Rule 144A restriction.
^ All or a portion of this security is on loan.
^^ Interest only security for which the series receives interest on notional principal (Par amount). Par
amount shown is the notional principal and does not reflect the cost of the security.
(S) As of June 30, 2005, the series had 18 securities representing $132,559,755 and 16.5% of net assets that
were fair valued in accordance with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt.
GDR = Global Depository Receipt.
FRN = Floating Rate Note. The interest rate is the rate in effect as of period end.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value, including $57,478,452 of securities on loan
(identified cost, $768,582,467) $862,758,698
Cash 613
Receivable for forward foreign currency exchange contracts 1,405,883
Receivable for forward foreign currency exchange contracts subject to
master netting agreements 30,723
Receivable for investments sold 3,658,242
Receivable for series shares sold 3,482,407
Interest and dividends receivable 2,266,348
Other assets 198
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $873,603,112
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts $34,047
Payable for investments purchased 12,966,825
Payable for series shares reacquired 103,450
Collateral for securities loaned, at value 58,913,098
Payable to affiliates
Management fee 16,402
Shareholder servicing costs 906
Distribution fee 2,570
Administrative services fee 300
Accrued expenses and other liabilities 186,294
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $72,223,892
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $801,379,220
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $716,714,510
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies (net of $1,334 deferred country tax) 95,571,191
Accumulated net realized gain (loss) on investments and foreign currency
transactions (19,415,875)
Accumulated undistributed net investment income 8,509,394
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $801,379,220
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 36,551,075
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $424,207,142 / 19,291,123 shares of beneficial interest
outstanding) $21.99
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $377,172,078 / 17,259,952 shares of beneficial interest
outstanding) $21.85
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses.
It also describes any gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $8,745,813
Interest 1,991,063
Foreign taxes withheld (536,046)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $10,200,830
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,499,861
Distribution fee 360,043
Shareholder servicing costs 117,083
Administrative services fee 47,635
Trustees' compensation 9,312
Custodian fee 182,430
Printing 84,041
Auditing fees 22,982
Legal fees 10,572
Shareholder solicitation expenses 69,347
Miscellaneous 9,274
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $3,412,580
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (11,750)
Reduction of expenses by investment adviser (1,533)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $3,399,297
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $6,801,533
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $5,992 country tax) $38,405,102
Foreign currency transactions 2,960,012
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $41,365,114
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $1,334 deferred country tax) $5,970,805
Translation of assets and liabilities in foreign currencies 3,375,218
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $9,346,023
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $50,711,137
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $57,512,670
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $6,801,533 $8,299,236
Net realized gain (loss) on investments and foreign currency transactions 41,365,114 59,572,600
Net unrealized gain (loss) on investments and foreign currency translation 9,346,023 51,035,571
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $57,512,670 $118,907,407
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(2,451,031) $(3,845,578)
Service Class (1,663,988) (1,567,688)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(4,115,019) $(5,413,266)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $166,377,716 $126,735,171
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $219,775,367 $240,229,312
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 581,603,853 341,374,541
At end of period (including accumulated undistributed net investment income of
$8,509,394 and $5,822,880, respectively) $801,379,220 $581,603,853
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED --------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $20.45 $15.95 $12.03 $15.94 $23.57 $24.16
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.22 $0.36 $0.29 $0.31 $0.39 $0.94
Net realized and unrealized gain (loss) on
investments and foreign currency 1.45 4.39 3.95 (3.88) (5.53) 0.66
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.67 $4.75 $4.24 $(3.57) $(5.14) $1.60
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.25) $(0.32) $(0.34) $(0.69) $(0.26)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (1.80) (1.93)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.13) $(0.25) $(0.32) $(0.34) $(2.49) $(2.19)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.99 $20.45 $15.95 $12.03 $15.94 $23.57
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 8.23++*** 30.20+*** 35.89 (22.76) (24.20) 7.07
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.91+ 0.89 0.92 0.94 0.93 0.90
Expenses after expense reductions## 0.91+ 0.89 0.92 0.94 0.93 0.90
Net investment income(S) 2.11+ 2.11 2.11 2.38 2.03 3.95
Portfolio turnover 38 105 134 102 102 111
Net assets at end of period (000 Omitted) $424,207 $357,652 $243,275 $170,032 $260,749 $308,386
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ---------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $20.32 $15.87 $11.98 $15.90 $23.57 $22.74
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.20 $0.32 $0.24 $0.28 $0.30 $0.29
Net realized and unrealized gain (loss) on
investments and foreign currency 1.44 4.36 3.95 (3.87) (5.49) 0.54
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $1.64 $4.68 $4.19 $(3.59) $(5.19) $0.83
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.23) $(0.30) $(0.33) $(0.68) $--
From net realized gain on investments and
foreign currency transactions -- -- -- -- (1.80) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.11) $(0.23) $(0.30) $(0.33) $(2.48) $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $21.85 $20.32 $15.87 $11.98 $15.90 $23.57
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 8.11++*** 29.84+*** 35.57 (22.90) (24.44) 3.65++
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.17+ 1.15 1.17 1.19 1.13 1.11+
Expenses after expense reductions## 1.17+ 1.15 1.17 1.19 1.13 1.11+
Net investment income(S) 1.96+ 1.87 1.79 2.20 1.73 1.85+
Portfolio turnover 38 105 134 102 102 111
Net assets at end of period (000 Omitted) $377,172 $223,952 $98,100 $43,101 $32,211 $4,127
- -------------------------------------------------------------------------------------------------------------------------------
** For the period from the class' inception, May 1, 2000, (Service Class) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S) Effective January 1, 2001, the series adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing and accreting all premiums and discounts on debt securities. Per
share data and ratios for periods prior to January 1, 2001 have not been restated to reflect this change.
+ The series' net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection
with series sales. The non-recurring accrual did not have a material impact on the net asset value per
share based on the shares outstanding on the day the proceeds were recorded.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Utilities Series (the series) is a non-diversified series of MFS Variable
Insurance Trust (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 89 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Bonds and other fixed income securities
(other than short-term obligations) in the series' portfolio are valued at an
evaluated bid price as reported by an independent pricing service, or to the
extent a valuation is not reported by a pricing service, such securities are
valued on the basis of quotes from brokers and dealers. Prices obtained from
pricing services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Forward foreign currency contracts are
valued using spot rates and forward points as reported by an independent
pricing source. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the series' portfolio are valued at amortized cost, which
approximates market value as determined by the Board of Trustees. Money market
mutual funds are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are
converted each business day into U.S. dollars based upon current exchange
rates. When pricing service information or market quotations are not readily
available, securities are priced at fair value as determined under the
direction of the Board of Trustees. For example, significant events (such as
movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the series calculates its
net asset value (generally, the close of the NYSE) that may impact the value
of securities traded in these foreign markets. In these cases, the series may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the series' valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the series to certain qualified
institutions (the "Borrowers") approved by the series. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the series with indemnification against Borrower default. The
series bears the risk of loss with respect to the investment of cash
collateral. On loans collateralized by cash, the cash collateral is invested
in a money market fund or short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the series and the lending agent. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the series and the lending agent. Income
from securities lending is included in interest income on 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
series may enter into forward foreign currency exchange contracts for hedging
purposes as well as for non-hedging purposes. For hedging purposes, the series
may enter into contracts to deliver or receive foreign currency it will
receive from or require for its normal investment activities. The series may
also use contracts in a manner intended to protect foreign currency-
denominated securities from declines in value due to unfavorable exchange rate
movements. For non-hedging purposes, the series may enter into contracts with
the intent of changing the relative exposure of the series' portfolio of
securities to different currencies to take advantage of anticipated changes.
The forward foreign currency exchange contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
as unrealized until the contract settlement date. On contract settlement date,
the gains or losses are recorded as realized gains or losses on foreign
currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. This amount, for the six months ended June 30, 2005, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, defaulted bonds, wash sales,
foreign capital gains tax, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from
ordinary income $5,413,266 $5,630,290
--------------------------------------------------------
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $4,113,997
Capital loss carryforward (58,679,984)
Unrealized appreciation (depreciation) 86,108,079
Other temporary differences (275,033)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on December 31, 2010.
Realized gain is reported net of any foreign capital gains tax in the Statement
of Operations.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with MFS
to provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.75% of the series' average daily net assets.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified
retirement and pension plans that invest in the series, and affiliates of
these participating insurance companies and plan sponsors) in connection with
the sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $116,660, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $272.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0143% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $1,533, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
The series' investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. On July 28, 2004, the series accrued an estimate
of the amount to be received pursuant to this matter in the amount of $38,231,
which did not have a material impact on the net asset value per share based on
the shares outstanding on the day the proceeds were recorded. The proceeds
were paid to the series on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$411,239,178 and $243,780,564, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $770,786,350
--------------------------------------------------
Gross unrealized appreciation $98,590,119
Gross unrealized depreciation (6,617,771)
--------------------------------------------------
Net unrealized appreciation
(depreciation) $91,972,348
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 3,327,008 $69,299,096 4,860,270 $85,737,176
Shares issued to shareholders in reinvestment
of distributions 120,622 2,451,031 236,215 3,845,578
Shares reacquired (1,649,476) (34,171,886) (2,858,685) (48,806,414)
- -------------------------------------------------------------------------------------------------------------------------------
Net change 1,798,154 $37,578,241 2,237,800 $40,776,340
SERVICE CLASS SHARES
Shares sold 6,889,004 $142,244,422 6,155,714 $108,396,221
Shares issued to shareholders in reinvestment
of distributions 82,376 1,663,988 96,771 1,567,688
Shares reacquired (731,979) (15,108,935) (1,414,523) (24,005,078)
- -------------------------------------------------------------------------------------------------------------------------------
Net change 6,239,401 $128,799,475 4,837,962 $85,958,831
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $2,587, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
(7) FINANCIAL INSTRUMENTS
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the series has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
Sales and purchases in the table below are netted by currency.
NET
IN UNREALIZED
CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------
SALES
8/08/05 - 8/24/05 EUR 45,505,026 $55,444,469 $55,103,211 $341,258
7/06/05 - 9/06/05 GBP 21,392,317 39,338,916 38,277,547 1,061,369
----------- ----------- ----------
$94,783,385 $93,380,758 $1,402,627
=========== =========== ==========
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PURCHASES
8/08/05 - 8/24/05 EUR 1,938,468 $2,359,296 $2,346,827 $(12,469)
7/06/05 GBP 10,570,934 18,951,866 18,933,544 (18,322)
----------- ----------- ----------
$21,311,162 $21,280,371 $(30,791)
=========== =========== ==========
- -------------------------------------------------------------------------------
At June 30, 2005, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable/receivable of
$30,723 with Goldman Sachs & Co.
Abbreviations have been used to indicate amounts shown in currencies other
than the U.S. Dollar. A list of abbreviations is shown below.
EUR = Euro
GBP = British Pound
At June 30, 2005, the series had sufficient cash and/or securities to cover
any commitments under
these contracts.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Utilities Series, which was held
on March 23, 2005, the following action was taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- --------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- --------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- --------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- --------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- --------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- --------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- --------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- --------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- --------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- --------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- --------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VUF-SEM 8/05 27M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) HIGH INCOME SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) HIGH INCOME SERIES
Objective: Seeks high current income by investing primarily in a
professionally managed, diversified portfolio of fixed-income securities, some
of which may involve equity features.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 15
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 20
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 25
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 25
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 25
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Bonds 94.6%
Cash & Other Net Assets 3.8%
Stocks 1.2%
Convertibles 0.4%
TOP 5 INDUSTRIES
Utilities - Electric Power 8.5%
------------------------------------------------
Gaming & Lodging 6.2%
------------------------------------------------
Telecommunications - Wireline 5.7%
------------------------------------------------
Medical - Health Technology & Services 5.4%
------------------------------------------------
Chemicals 5.2%
------------------------------------------------
CREDIT QUALITY OF BONDS**
BBB 4.6%
------------------------------------------------
BB 36.2%
------------------------------------------------
B 41.4%
------------------------------------------------
CCC 15.0%
------------------------------------------------
CC 1.4%
------------------------------------------------
D 0.3%
------------------------------------------------
Not Rated 1.1%
------------------------------------------------
PORTFOLIO FACTS
Average Duration 4.7
------------------------------------------------
Average Life 8.1 yrs.
------------------------------------------------
Average Maturity*** 8.6 yrs.
------------------------------------------------
Average Quality**** B+
------------------------------------------------
Average Short Term Quality A-1
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Percentages are based on the total market value of
investments as of 6/30/05.
*** The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre-refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Portfolio Average Credit Quality rating is based upon a market weighted
average of portfolio holdings.
Percentages are based on net assets as of 6/30/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $1,005.00 $4.47
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.90% $1,000.00 $1,020.28 $4.51
- -------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,004.90 $5.72
Service -----------------------------------------------------------------------
Class Hypothetical* 1.15% $1,000.00 $1,019.04 $5.76
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Bonds - 93.1%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 1,430,000 $ 1,408,550
DIRECTV Holdings LLC, 8.375%, 2013 497,000 550,427
DIRECTV Holdings LLC, 6.375%, 2015## 770,000 766,150
Echostar DBS Corp., 6.375%, 2011## 2,425,000 2,403,781
Emmis Operating Co., 6.875%, 2012 805,000 796,950
Granite Broadcasting Corp., 9.75%, 2010 1,365,000 1,269,450
Innova S. de R.L., 9.375%, 2013 870,000 980,925
Intelsat Ltd., 8.625%, 2015## 1,005,000 1,060,275
Intelsat Ltd., 0% to 2010, 9.25% to 2015## 1,540,000 1,027,950
Lamar Media Corp., 7.25%, 2013 760,000 801,800
Panamsat Holding Corp., 0% to 2005, 10.375% to 2014 1,650,000 1,134,375
Paxson Communications Corp., 0% to 2006, 12.25% to 2009## 2,230,000 2,085,050
Spanish Broadcasting System, Inc., 9.625%, 2009 775,000 812,781
- -----------------------------------------------------------------------------------------------------------------------
$ 15,098,464
- -----------------------------------------------------------------------------------------------------------------------
Aerospace - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Argo-Tech Corp., 9.25%, 2011 $ 675,000 $ 732,375
BE Aerospace, Inc., 8.875%, 2011 895,000 935,275
TransDigm Holding Co., 8.375%, 2011 890,000 943,400
- -----------------------------------------------------------------------------------------------------------------------
$ 2,611,050
- -----------------------------------------------------------------------------------------------------------------------
Airlines - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.9%, 2017 $ 354,101 $ 288,396
Continental Airlines, Inc., 6.748%, 2017 278,051 228,268
Continental Airlines, Inc., 6.795%, 2018 484,609 404,598
Continental Airlines, Inc., 7.566%, 2020 787,145 648,283
- -----------------------------------------------------------------------------------------------------------------------
$ 1,569,545
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Levi Strauss & Co., 12.25%, 2012 $ 895,000 $ 977,788
Levi Strauss & Co., 9.75%, 2015 685,000 679,863
- -----------------------------------------------------------------------------------------------------------------------
$ 1,657,651
- -----------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 2.4%
- -----------------------------------------------------------------------------------------------------------------------
Airplane Pass-Through Trust, 10.875%, 2019** $ 74,078 $ 222
Anthracite CDO Ltd., 6%, 2037## 290,000 260,449
ARCap, Inc., 6.1%, 2045## 906,493 852,103
Asset Securitization Corp., 8.7809%, 2029## 2,000,000 1,882,034
Asset Securitization Corp., FRN, 8.2909%, 2029 1,366,658 1,425,759
Commercial Mortgage Acceptance Corp., 5.44%, 2013## 550,000 565,302
Credit Suisse First Boston Mortgage Securities Corp., 6.75%, 2030## 630,000 684,748
Crest Ltd., 7%, 2040## 846,250 823,094
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 750,000 716,250
First Union National Bank Commercial Mortgage Corp., 6.75%, 2032 750,000 779,451
GMAC Commercial Mortgage Securities, Inc., 7.9079%, 2034## 704,000 781,391
- -----------------------------------------------------------------------------------------------------------------------
$ 8,770,803
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 4.1%
- -----------------------------------------------------------------------------------------------------------------------
Affinia Group, Inc., 9%, 2014## $ 1,035,000 $ 869,400
Ford Motor Credit Co., 6.625%, 2008 1,094,000 1,080,487
Ford Motor Credit Co., 5.625%, 2008 845,000 805,266
General Motors Acceptance Corp., 6.125%, 2008 675,000 653,412
General Motors Acceptance Corp., 5.85%, 2009 1,055,000 988,969
General Motors Acceptance Corp., 6.75%, 2014 2,252,000 2,014,806
General Motors Corp., 8.375%, 2033 1,801,000 1,503,835
INTERMET Corp., 9.75%, 2009** 995,000 430,338
Lear Corp., 8.11%, 2009 1,015,000 1,049,551
Metaldyne Corp., 11%, 2012 243,000 157,343
Metaldyne Corp., 10%, 2013## 1,375,000 1,127,500
Navistar International Corp., 7.5%, 2011 2,080,000 2,121,600
TRW Automotive, Inc., 9.375%, 2013 973,000 1,077,598
TRW Automotive, Inc., 11%, 2013 1,044,000 1,200,600
- -----------------------------------------------------------------------------------------------------------------------
$ 15,080,705
- -----------------------------------------------------------------------------------------------------------------------
Basic Industry - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Trimas Corp., 9.875%, 2012 $ 700,000 $ 588,000
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.7%
- -----------------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 8%, 2012 $ 810,000 $ 793,800
CCO Holdings LLC, 8.75%, 2013 500,000 492,500
Charter Communications, Inc., 8.625%, 2009 5,275,000 3,916,687
Charter Communications, Inc., 9.92%, 2011 1,065,000 777,450
Charter Communications, Inc., 8.375%, 2014## 510,000 507,450
CSC Holdings, Inc., 8.125%, 2009 940,000 951,750
CSC Holdings, Inc., 8.125%, 2009 965,000 977,062
CSC Holdings, Inc., 6.75%, 2012## 935,000 878,900
FrontierVision Holdings LP, 11.875%, 2007** 310,000 426,250
FrontierVision Holdings LP, "B", 11.875%, 2007** 455,000 625,625
Frontiervision Operating Partners LP, 11%, 2006** 1,000,000 1,345,000
Mediacom Broadband LLC, 9.5%, 2013 1,030,000 1,027,425
Rogers Cable, Inc., 8.75%, 2032 780,000 885,300
- -----------------------------------------------------------------------------------------------------------------------
$ 13,605,199
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Refco Finance Holdings LLC, 9%, 2012 $ 785,000 $ 832,100
- -----------------------------------------------------------------------------------------------------------------------
Building - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Interface, Inc., 10.375%, 2010 $ 878,000 $ 965,800
Nortek Holdings, Inc., 8.5%, 2014 1,469,000 1,366,170
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014## 1,288,000 605,360
Texas Industries, Inc., 7.25%, 2013## 190,000 194,750
- -----------------------------------------------------------------------------------------------------------------------
$ 3,132,080
- -----------------------------------------------------------------------------------------------------------------------
Business Services - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $ 965,000 $ 998,775
Iron Mountain, Inc., 7.75%, 2015 550,000 552,750
Iron Mountain, Inc., 6.625%, 2016 640,000 592,000
Lucent Technologies, Inc., 5.5%, 2008 815,000 808,888
Lucent Technologies, Inc., 6.45%, 2029 960,000 859,200
Northern Telecom Corp., 6.875%, 2023 700,000 654,500
Northern Telecom Corp., 7.875%, 2026 430,000 430,000
Xerox Corp., 7.625%, 2013 2,540,000 2,733,675
- -----------------------------------------------------------------------------------------------------------------------
$ 7,629,788
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 5.1%
- -----------------------------------------------------------------------------------------------------------------------
ARCO Chemical Co., 9.8%, 2020 $ 945,000 $ 1,058,400
BCP Crystal Holdings Corp., 9.625%, 2014 742,000 831,040
Crystal U.S. Holdings LLC, 0% to 2009, 10% to 2014 869,000 612,645
Crystal U.S. Holdings LLC, 0% to 2009, 10.5% to 2014 1,222,000 849,290
Equistar Chemicals LP, 10.625%, 2011 630,000 695,362
Hercules, Inc., 6.75%, 2029 940,000 911,800
Huntsman International LLC, 10.125%, 2009 1,202,000 1,236,558
Huntsman International LLC, 7.375%, 2015## 1,215,000 1,199,813
IMC Global, Inc., 10.875%, 2013 640,000 750,400
KI Holdings, Inc., 0% to 2009, 9.875% to 2014## 1,304,000 756,320
Kronos International, Inc., 8.875%, 2009 EUR 45,000 57,665
Lyondell Chemical Co., 9.5%, 2008 $ 720,000 765,900
Lyondell Chemical Co., 11.125%, 2012 1,360,000 1,543,600
Nalco Co., 7.75%, 2011 350,000 372,750
Nalco Co., 8.875%, 2013 705,000 756,113
Nova Chemicals Corp., 6.5%, 2012 1,795,000 1,741,150
Resolution Performance Products LLC, 13.5%, 2010 770,000 827,750
Rhodia S.A., 8.875%, 2011 2,150,000 2,069,375
Rockwood Specialties Group, Inc., 10.625%, 2011 775,000 854,438
Rockwood Specialties Group, Inc., 7.5%, 2014## 645,000 640,163
- -----------------------------------------------------------------------------------------------------------------------
$ 18,530,532
- -----------------------------------------------------------------------------------------------------------------------
Construction - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875%, 2015## $ 1,180,000 $ 1,168,200
D.R. Horton, Inc., 8%, 2009 1,135,000 1,243,285
Technical Olympic USA, Inc., 9%, 2010 400,000 411,500
Technical Olympic USA, Inc., 7.5%, 2015 835,000 751,500
WCI Communities, Inc., 7.875%, 2013 1,175,000 1,175,000
WCI Communities, Inc., 6.625%, 2015 635,000 581,025
- -----------------------------------------------------------------------------------------------------------------------
$ 5,330,510
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Bombardier Recreational Products, Inc., 8.375%, 2013 $ 885,000 $ 942,525
Church & Dwight, Inc., 6%, 2012 710,000 717,100
Integrated Electrical Services, Inc., 9.375%, 2009 1,120,000 837,200
K2, Inc., 7.375%, 2014 325,000 342,063
Revlon Consumer Products Corp., 9.5%, 2011 1,140,000 1,077,300
Safilo Capital International S.A., 9.625%, 2013## EUR 1,440,000 1,875,730
Samsonite Corp., 8.875%, 2011 $ 1,125,000 1,195,313
Service Corp. International, 7%, 2017## 1,135,000 1,166,213
- -----------------------------------------------------------------------------------------------------------------------
$ 8,153,444
- -----------------------------------------------------------------------------------------------------------------------
Containers - 1.9%
- -----------------------------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 10.875%, 2013 $ 1,645,000 $ 1,932,875
Greif, Inc., 8.875%, 2012 1,155,000 1,241,625
Owens-Brockway Glass Container, Inc., 8.875%, 2009 465,000 494,063
Owens-Brockway Glass Container, Inc., 8.25%, 2013 650,000 706,063
Owens-Illinois, Inc., 7.8%, 2018## 850,000 892,500
Plastipak Holdings, Inc., 10.75%, 2011 540,000 595,350
Pliant Corp., 11.625%, 2009#,## 123,392 132,029
Pliant Corp., 13%, 2010## 270,000 218,700
Pliant Corp., 13%, 2010 823,000 666,630
- -----------------------------------------------------------------------------------------------------------------------
$ 6,879,835
- -----------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 6.125%, 2014 $ 1,025,000 $ 1,025,000
L-3 Communications Holdings, Inc., 5.875%, 2015 870,000 843,900
- -----------------------------------------------------------------------------------------------------------------------
$ 1,868,900
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 1,490,000 $ 1,542,150
Magnachip Semiconductor S.A., 8%, 2014## 155,000 148,800
- -----------------------------------------------------------------------------------------------------------------------
$ 1,690,950
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013## $ 530,000 $ 649,250
Gazprom OAO, 8.625%, 2034## 1,000,000 1,253,750
- -----------------------------------------------------------------------------------------------------------------------
$ 1,903,000
- -----------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 $ 385,254 $ 394,404
Federal Republic of Brazil, 8.875%, 2019 1,217,000 1,290,020
Republic of Panama, 9.375%, 2023 471,000 581,685
Republic of Panama, 9.375%, 2029 220,000 272,250
Russian Ministry of Finance, 12.75%, 2028## 408,000 737,909
- -----------------------------------------------------------------------------------------------------------------------
$ 3,276,268
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Belden & Blake Corp., 8.75%, 2012 $ 885,000 $ 867,300
Chesapeake Energy Corp., 7%, 2014 1,350,000 1,431,000
Chesapeake Energy Corp., 6.375%, 2015## 665,000 681,625
Chesapeake Energy Corp., 6.875%, 2016 1,075,000 1,120,687
Encore Acquisition Co., 8.375%, 2012 665,000 721,525
Encore Acquisition Co., 6.25%, 2014 1,080,000 1,093,500
Encore Acquisition Co., 6%, 2015 595,000 584,052
Kerr-McGee Corp., 6.95%, 2024 1,460,000 1,508,579
Newfield Exploration Co., 6.625%, 2014 825,000 864,188
Plains Exploration & Production Co., 7.125%, 2014 1,175,000 1,257,250
- -----------------------------------------------------------------------------------------------------------------------
$ 10,129,706
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $ 905,000 $ 1,091,944
- -----------------------------------------------------------------------------------------------------------------------
Entertainment - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 759,000 $ 744,768
AMC Entertainment, Inc., 8.625%, 2012 1,150,000 1,178,750
Intrawest Corp., 7.5%, 2013 335,000 343,794
Loews Cineplex Entertainment Corp., 9%, 2014## 1,140,000 1,102,950
Six Flags, Inc., 9.75%, 2013 1,170,000 1,104,188
- -----------------------------------------------------------------------------------------------------------------------
$ 4,474,450
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 $ 1,370,000 $ 1,472,750
Merisant Co., 9.5%, 2013## 280,000 198,800
Michael Foods, Inc., 8%, 2013 750,000 763,125
Smithfield Foods, Inc., 7%, 2011 970,000 1,020,925
United Biscuits Finance PLC, 10.625%, 2011 EUR 475,000 605,810
- -----------------------------------------------------------------------------------------------------------------------
$ 4,061,410
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 4.7%
- -----------------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 8.55%, 2010 $ 2,065,000 $ 2,152,762
Buckeye Technologies, Inc., 8.5%, 2013 1,635,000 1,667,700
Corporacion Durango S.A. de C.V., 7.5%, 2012 736,950 582,190
Georgia-Pacific Corp., 9.375%, 2013 2,790,000 3,156,188
Georgia-Pacific Corp., 7.75%, 2029 745,000 837,194
Graphic Packaging International, Inc., 9.5%, 2013 1,275,000 1,284,563
Jefferson Smurfit Corp., 8.25%, 2012 1,035,000 1,040,175
JSG Funding LLC, 11.5%, 2015#,## EUR 1,643,773 1,573,630
MDP Acquisitions PLC, 9.625%, 2012 $ 1,070,000 1,070,000
Newark Group, Inc., 9.75%, 2014 755,000 694,600
NewPage Corp., 12%, 2013## 110,000 108,900
Norske Skog Canada Ltd., 8.625%, 2011 1,730,000 1,784,063
Norske Skog Canada Ltd., 7.375%, 2014 615,000 602,700
Stone Container Corp., 7.375%, 2014 850,000 799,000
- -----------------------------------------------------------------------------------------------------------------------
$ 17,353,665
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 6.1%
- -----------------------------------------------------------------------------------------------------------------------
Aztar Corp., 7.875%, 2014 $ 985,000 $ 1,041,637
Boyd Gaming Corp., 6.75%, 2014 1,355,000 1,388,875
Caesars Entertainment, Inc., 8.875%, 2008 545,000 608,356
Caesars Entertainment, Inc., 8.125%, 2011 1,695,000 1,949,250
Host Marriott LP, 7.125%, 2013 1,240,000 1,292,700
Host Marriott LP, 6.375%, 2015## 825,000 816,750
Mandalay Resort Group, 9.375%, 2010 955,000 1,067,213
MGM Mirage, Inc., 8.5%, 2010 580,000 643,800
MGM Mirage, Inc., 8.375%, 2011 1,585,000 1,727,650
MGM Mirage, Inc., 5.875%, 2014 1,850,000 1,796,813
Penn National Gaming, Inc., 6.75%, 2015## 920,000 913,100
Pinnacle Entertainment, Inc., 8.25%, 2012 700,000 728,000
Pinnacle Entertainment, Inc., 8.75%, 2013 955,000 1,012,300
Royal Caribbean Cruises Ltd., 6.875%, 2013 2,205,000 2,348,325
Scientific Games Corp., 6.25%, 2012## 675,000 681,750
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 2,425,000 2,734,188
Station Casinos, Inc., 6.5%, 2014 845,000 861,900
Wynn Las Vegas LLC, 6.625%, 2014## 810,000 787,725
- -----------------------------------------------------------------------------------------------------------------------
$ 22,400,332
- -----------------------------------------------------------------------------------------------------------------------
Industrial - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $ 1,695,000 $ 1,830,600
Da Lite Screen Co., Inc., 9.5%, 2011 1,115,000 1,187,475
General Binding Corp., 9.375%, 2008 520,000 525,200
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 1,395,000 1,415,925
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 2,385,000 1,696,331
Knowledge Learning Corp., 7.75%, 2015## 725,000 692,375
Milacron Escrow Corp., 11.5%, 2011 1,590,000 1,669,500
Valmont Industries, Inc., 6.875%, 2014 1,115,000 1,115,000
Williams Scotsman, Inc., 9.875%, 2007 370,000 371,850
- -----------------------------------------------------------------------------------------------------------------------
$ 10,504,256
- -----------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 750,000 $ 776,718
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 420,000 $ 400,050
Case New Holland, Inc., 9.25%, 2011 1,330,000 1,396,500
JLG Industries, Inc., 8.25%, 2008 1,115,000 1,167,963
Manitowoc Co., Inc., 10.375%, 2011 EUR 705,000 941,764
Terex Corp., 10.375%, 2011 $ 530,000 575,050
Terex Corp., 9.25%, 2011 545,000 591,325
Terex Corp., 7.375%, 2014 180,000 186,300
United Rentals, Inc., 6.5%, 2012 735,000 723,056
United Rentals, Inc., 7.75%, 2013 1,080,000 1,061,100
United Rentals, Inc., 7%, 2014 885,000 842,963
- -----------------------------------------------------------------------------------------------------------------------
$7,886,071
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 5.3%
- -----------------------------------------------------------------------------------------------------------------------
AmerisourceBergen Corp., 7.25%, 2012 $ 870,000 $ 958,087
CDRV Investors, Inc., 0% to 2010, 9.625% to 2015## 2,130,000 1,043,700
DaVita, Inc., 6.625%, 2013## 750,000 774,375
DaVita, Inc., 7.25%, 2015## 875,000 899,062
Extendicare Health Services, Inc., 6.875%, 2014 1,135,000 1,126,487
Fisher Scientific International, Inc., 6.75%, 2014 235,000 245,575
Fisher Scientific International, Inc., 6.125%, 2015## 725,000 725,906
HCA, Inc., 7.875%, 2011 2,370,000 2,607,685
HCA, Inc., 6.375%, 2015 3,390,000 3,517,491
HealthSouth Corp., 7.625%, 2012 1,110,000 1,076,700
InSight Health Services Corp., 9.875%, 2011 575,000 448,500
Psychiatric Solutions, Inc., 7.75%, 2015## 370,000 370,000
Select Medical Corp., 7.625%, 2015## 780,000 772,200
Tenet Healthcare Corp., 6.5%, 2012 225,000 213,750
Tenet Healthcare Corp., 9.875%, 2014 1,325,000 1,421,063
Tenet Healthcare Corp., 9.25%, 2015## 845,000 876,688
Triad Hospitals, Inc., 7%, 2013 1,165,000 1,197,038
U.S. Oncology, Inc., 10.75%, 2014 935,000 1,019,150
- -----------------------------------------------------------------------------------------------------------------------
$ 19,293,457
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015## $ 1,335,000 $ 1,298,288
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Century Aluminum Co., 7.5%, 2014 $ 1,265,000 $ 1,249,187
Doe Run Resources Corp., 11.75%, 2008# 108,343 86,674
Foundation PA Coal Co., 7.25%, 2014 830,000 871,500
Peabody Energy Corp., 5.875%, 2016 835,000 835,000
Russel Metals, Inc., 6.375%, 2014 1,075,000 1,005,125
- -----------------------------------------------------------------------------------------------------------------------
$ 4,047,486
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 3.6%
- -----------------------------------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625%, 2021 $ 1,135,000 $ 1,438,917
Colorado Interstate Gas Co., 5.95%, 2015## 465,000 456,281
El Paso Energy Corp., 7.625%, 2010 875,000 923,737
El Paso Energy Corp., 7%, 2011 2,220,000 2,214,450
El Paso Energy Corp., 7.75%, 2013 2,185,000 2,332,487
Enterprise Products Operating LP, 6.375%, 2013 573,000 620,886
Enterprise Products Partners LP, 5.6%, 2014 1,683,000 1,731,893
Markwest Energy Partners LP, 6.875%, 2014## 1,275,000 1,268,625
Transcontinental Gas Pipe Line Corp., 7%, 2011 705,000 759,638
Williams Cos., Inc., 7.125%, 2011 965,000 1,042,200
Williams Cos., Inc., 7.75%, 2031 355,000 391,388
- -----------------------------------------------------------------------------------------------------------------------
$ 13,180,502
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Gulfmark Offshore, Inc., 7.75%, 2014 $ 1,175,000 $ 1,236,688
Hanover Compressor Co., 9%, 2014 910,000 969,150
Petroleum Geo-Services A.S.A., 10%, 2010 1,030,000 1,153,600
- -----------------------------------------------------------------------------------------------------------------------
$ 3,359,438
- -----------------------------------------------------------------------------------------------------------------------
Oils - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
CITGO Petroleum Corp., 6%, 2011 $ 1,460,000 $ 1,456,350
Premcor Refining Group, Inc., 7.75%, 2012 805,000 879,463
Premcor Refining Group, Inc., 7.5%, 2015 520,000 569,400
- -----------------------------------------------------------------------------------------------------------------------
$ 2,905,213
- -----------------------------------------------------------------------------------------------------------------------
Pollution Control - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 6.5%, 2010 $ 920,000 $ 906,200
Allied Waste North America, Inc., 7.875%, 2013 990,000 1,012,275
- -----------------------------------------------------------------------------------------------------------------------
$ 1,918,475
- -----------------------------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., 6.875%, 2014 $ 1,397,000 $ 1,362,075
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Cenveo Corp., 7.875%, 2013 $ 560,000 $ 532,000
Dex Media East LLC, 12.125%, 2012 975,000 1,167,562
Dex Media, Inc., 0% to 2008, 9% to 2013 3,025,000 2,435,125
Hollinger, Inc., 12.875%, 2011## 132,000 144,375
Lighthouse International Co. S.A., 8%, 2014## EUR 955,000 1,192,021
Mail-Well Corp., 9.625%, 2012 $ 700,000 756,000
MediaNews Group, Inc., 6.875%, 2013 1,195,000 1,184,544
PRIMEDIA, Inc., 8.875%, 2011 860,000 900,850
PRIMEDIA, Inc., 8%, 2013 1,055,000 1,057,638
WDAC Subsidiary Corp., 8.375%, 2014## 1,095,000 1,045,725
- -----------------------------------------------------------------------------------------------------------------------
$ 10,415,840
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Kansas City Southern Railway Co., 7.5%, 2009 $ 1,460,000 $ 1,507,450
TFM S.A. de C.V., 9.375%, 2012## 392,000 407,680
TFM S.A. de C.V., 12.5%, 2012 195,000 228,150
- -----------------------------------------------------------------------------------------------------------------------
$ 2,143,280
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Carrols Holdings Corp., 9%, 2013## $ 970,000 $ 982,125
- -----------------------------------------------------------------------------------------------------------------------
Retailers - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015## $ 1,220,000 $ 1,189,500
Couche-Tard, Inc., 7.5%, 2013 1,525,000 1,601,250
Dollar General Corp., 8.625%, 2010 970,000 1,105,800
Eye Care Centers of America, Inc., 10.75%, 2015## 630,000 563,850
Finlay Fine Jewelry Corp., 8.375%, 2012 1,415,000 1,275,269
J.C. Penney Corp., Inc., 8%, 2010 940,000 1,034,000
Rite Aid Corp., 9.25%, 2013 755,000 739,900
Rite Aid Corp., 6.875%, 2013 625,000 540,625
- -----------------------------------------------------------------------------------------------------------------------
$ 8,050,194
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Payless ShoeSource, Inc., 8.25%, 2013 $ 1,025,000 $ 1,081,375
- -----------------------------------------------------------------------------------------------------------------------
Steel - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
AK Steel Holding Corp., 7.75%, 2012 $ 1,480,000 $ 1,250,600
Chaparral Steel Co., 10%, 2013## 515,000 518,862
- -----------------------------------------------------------------------------------------------------------------------
$ 1,769,462
- -----------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Jitney Jungle Stores of America, Inc., 10.375%, 2007** $ 35,000 $ 0
Roundy's, Inc., 8.875%, 2012 1,440,000 1,483,200
- -----------------------------------------------------------------------------------------------------------------------
$ 1,483,200
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 3.8%
- -----------------------------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 0% to 2005, 12% to 2009 $ 1,144,000 $ 1,261,260
American Tower Corp., 9.375%, 2009 18,000 18,877
American Tower Corp., 7.125%, 2012 460,000 486,450
American Towers, Inc., 7.25%, 2011 690,000 727,950
Centennial Communications Corp., 10.125%, 2013 615,000 694,950
Dobson Cellular Systems, Inc., 9.875%, 2012 345,000 363,112
Dolphin Telecom PLC, 11.5%, 2008** 475,000 0
Dolphin Telecom PLC, 14%, 2009** 150,000 0
IWO Escrow Co., FRN, 6.8906%, 2012## 155,000 153,838
Nextel Communications, Inc., 5.95%, 2014 5,115,000 5,313,206
Rogers Wireless, Inc., 6.375%, 2014 1,475,000 1,500,813
Rogers Wireless, Inc., 7.5%, 2015 795,000 864,563
Rural Cellular Corp., 9.75%, 2010 900,000 837,000
Rural Cellular Corp., 9.875%, 2010 760,000 784,700
U.S. Unwired, Inc., 10%, 2012 970,000 1,079,125
- -----------------------------------------------------------------------------------------------------------------------
$ 14,085,844
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 5.6%
- -----------------------------------------------------------------------------------------------------------------------
AT&T Corp., 7.3%, 2011 $ 1,215,000 $ 1,400,287
AT&T Corp., 9.75%, 2031 595,000 774,243
Cincinnati Bell, Inc., 8.375%, 2014 905,000 927,625
Cincinnati Bell, Inc., 8.375%, 2014## 205,000 210,125
Citizens Communications Co., 9.25%, 2011 2,061,000 2,300,591
Citizens Communications Co., 6.25%, 2013 885,000 856,237
Citizens Communications Co., 9%, 2031 350,000 358,750
Eircom Funding PLC, 8.25%, 2013 750,000 813,750
Espirit Telecom Group PLC, 10.875%, 2008** 50,000 0
GCI, Inc., 7.25%, 2014 1,170,000 1,123,200
MCI, Inc., 6.908%, 2007 890,000 902,238
MCI, Inc., 7.688%, 2009 545,000 567,481
Qwest Capital Funding, Inc., 7.25%, 2011 1,445,000 1,383,588
Qwest Corp., 7.875%, 2011## 1,650,000 1,720,125
Qwest Corp., 13.5%, 2012## 1,460,000 1,587,750
Qwest Services Corp., 13.5%, 2010 3,655,000 4,221,525
Time Warner Telecom Holdings, Inc., 9.25%, 2014 355,000 342,575
Time Warner Telecom Holdings, Inc., 9.25%, 2014## 1,160,000 1,119,400
- -----------------------------------------------------------------------------------------------------------------------
$ 20,609,490
- -----------------------------------------------------------------------------------------------------------------------
Tire & Rubber - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Cooper Standard Automotive, Inc., 8.375%, 2014 $ 985,000 $ 778,150
Goodyear Tire & Rubber Co., 9%, 2015## 715,000 702,488
- -----------------------------------------------------------------------------------------------------------------------
$ 1,480,638
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
R. J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 1,025,000 $ 1,042,938
R. J. Reynolds Tobacco Holdings, Inc., 7.3%, 2015## 775,000 775,000
- -----------------------------------------------------------------------------------------------------------------------
$ 1,817,938
- -----------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
CHC Helicopter Corp., 7.375%, 2014 $ 680,000 $ 678,300
Stena AB, 9.625%, 2012 365,000 397,850
Stena AB, 7%, 2016 928,000 860,720
Westinghouse Air Brake Technologies Corp., 6.875%, 2013 195,000 199,875
- -----------------------------------------------------------------------------------------------------------------------
$ 2,136,745
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 8.4%
- -----------------------------------------------------------------------------------------------------------------------
AES Corp., 8.75%, 2013## $ 2,125,000 $ 2,374,687
AES Corp., 9%, 2015## 615,000 690,337
Allegheny Energy Supply Co. LLC, 8.25%, 2012## 1,020,000 1,142,400
Calpine Corp., 8.5%, 2008 1,015,000 730,800
Calpine Corp., 9.625%, 2014## 400,000 400,000
CenterPoint Energy, Inc., 7.25%, 2010 814,000 903,154
CMS Energy Corp., 8.5%, 2011 1,360,000 1,516,400
DPL, Inc., 6.875%, 2011 760,000 820,800
Dynegy Holdings, Inc., 9.875%, 2010## 685,000 756,925
Dynegy Holdings, Inc., 10.125%, 2013## 525,000 593,250
Empresa Nacional de Electricidad S.A., 8.35%, 2013 1,285,000 1,492,446
FirstEnergy Corp., 6.45%, 2011 1,475,000 1,611,623
FirstEnergy Corp., 7.375%, 2031 208,000 254,255
Midwest Generation LLC, 8.75%, 2034 1,740,000 1,948,800
Mission Energy Holding Co., 13.5%, 2008 725,000 860,938
Nevada Power Co., 5.875%, 2015## 730,000 733,650
NorthWestern Corp., 5.875%, 2014## 1,240,000 1,271,000
NRG Energy, Inc., 8%, 2013## 1,882,000 1,985,510
PSEG Energy Holdings LLC, 7.75%, 2007 850,000 877,625
PSEG Energy Holdings LLC, 8.625%, 2008 695,000 738,438
Reliant Energy, Inc., 6.75%, 2014 510,000 498,525
Reliant Resources, Inc., 9.25%, 2010 865,000 942,850
Reliant Resources, Inc., 9.5%, 2013 275,000 305,250
Sierra Pacific Power Co., 6.25%, 2012 560,000 575,400
Sierra Pacific Resources, 8.625%, 2014 720,000 795,600
Teco Energy, Inc., 7%, 2012## 1,000,000 1,080,000
Tenaska Alabama Partners LP, 7%, 2021## 479,000 484,988
Texas Genco LLC, 6.875%, 2014## 1,120,000 1,178,800
TXU Corp., 5.55%, 2014## 3,220,000 3,122,936
- -----------------------------------------------------------------------------------------------------------------------
$ 30,687,387
- -----------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $339,073,756) $340,995,828
- -----------------------------------------------------------------------------------------------------------------------
Stocks - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0%
- -----------------------------------------------------------------------------------------------------------------------
Sind Holdings, Inc.+* 539 $ 56,811
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Magna International, Inc., "A" 16,300 $ 1,146,542
Oxford Automotive* 82 0
- -----------------------------------------------------------------------------------------------------------------------
$ 1,146,542
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
NTL, Inc.* 2,399 $ 164,140
Telewest Global, Inc.* 56,817 1,294,291
- -----------------------------------------------------------------------------------------------------------------------
$ 1,458,431
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0%
- -----------------------------------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V.+* 59,326 $ 46,089
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Merck & Co., Inc. 26,500 $ 816,200
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0%
- -----------------------------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc.* 2,125 $ 0
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
- -----------------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 18 $ 630
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 13,583 $ 330,339
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 0%
- -----------------------------------------------------------------------------------------------------------------------
VersaTel Telecom International N.V.* 1,752 $ 3,896
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $3,705,411) $ 3,858,938
- -----------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
General Motors Corp., 5.25%* (Identified Cost, $1,298,063) 72,523 $ 1,346,027
- -----------------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 14.25%* 63 $ 406,350
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0%
- -----------------------------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc., 14%#* 150 $ 0
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.1%
- -----------------------------------------------------------------------------------------------------------------------
PRIMEDIA, Inc., 8.625%* 1,995 $ 196,009
- -----------------------------------------------------------------------------------------------------------------------
Real Estate - 0%
- -----------------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", 8.75%* 1,200 $ 32,496
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 0%
- -----------------------------------------------------------------------------------------------------------------------
PTV, Inc., "A", 10%* 5 $ 10
- -----------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $726,948) $ 634,865
- -----------------------------------------------------------------------------------------------------------------------
Warrants - 0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER STRIKE PRICE FIRST EXERCISE SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
GT Group Telecom, Inc. (Telephone Services)* $ 0.00 8/01/00 550 $0
Loral Space & Communications Ltd. (Business Services)* 0.14 1/28/97 100 1
Loral Space & Communications Ltd. (Business Services)* 0.14 1/28/97 200 1
Ono Finance (Broadcast & Cable TV)* 0.00 5/31/09 525 0
Pliant Corp. (Containers)##* 0.01 5/25/00 110 1
Renaissance Cosmetics, Inc. (Consumer Goods & Services)* 0.01 8/08/96 129 0
Sterling Chemicals, Inc. (Specialty Chemicals)* 52.00 12/31/02 29 35
Thermadyne Holdings Corp. (Machinery & Tools)* 20.78 5/29/03 507 101
XM Satellite Radio, Inc. (Broadcast & Cable TV)* 45.24 9/16/00 175 10,500
XO Communications, Inc., "A" (Telephone Services)* 6.25 5/27/03 253 89
XO Communications, Inc., "B" (Telephone Services)* 7.50 5/27/03 189 49
XO Communications, Inc., "C" (Telephone Services)* 10.00 5/27/03 189 40
- -----------------------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $89,402) $10,817
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - < 4.3%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05 $14,638,000 $ 14,638,000
General Electric Capital Corp., 3.4%, due 7/01/05 1,030,000 1,030,000
- -----------------------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 15,668,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $360,561,580)(+) $362,514,475
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.0% 3,777,694
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $366,292,169
- -----------------------------------------------------------------------------------------------------------------------
* Non-Income producing security.
** Non-Income producing security - in default.
< The rate shown represents an annualized yield at time of purchase.
+ Restricted security.
# Payment-in-kind security.
## SEC Rule 144A restriction.
(+) As of June 30, 2005 the series had two securites representing $60,707 and less than 0.1% of net assets that
were fair valued in accordance with the policies adopted by the Board of Trustees.
ADR = American Depository Receipt
FRN = Floating Rate Note. The interest rate is the rate in effect as of period end.
Abbreviations have been used throughout this report to 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.
EUR = Euro
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $360,561,580) $362,514,475
Receivable for forward foreign currency exchange contracts 48,487
Receivable for investments sold 1,440,964
Receivable for series shares sold 138,494
Interest and dividends receivable 6,181,125
Receivable from investment adviser 55,358
Other assets 197
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $370,379,100
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable to custodian $723,318
Payable for forward foreign currency exchange contracts 4,750
Payable for investments purchased 2,778,074
Payable for series shares reacquired 443,711
Payable to affiliates
Management fee 7,538
Shareholder servicing costs 446
Distribution fee 60
Administrative services fee 352
Accrued expenses and other liabilities 128,682
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $4,086,931
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $366,292,169
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $360,915,298
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 1,995,164
Accumulated net realized gain (loss) on investments and foreign currency
transactions (10,066,214)
Accumulated undistributed net investment income 13,447,921
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $366,292,169
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 37,722,390
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $357,464,937 / 36,807,563 shares of beneficial interest
outstanding) $9.71
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $8,827,232 / 914,827 shares of beneficial interest outstanding) $9.65
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Income
Interest $15,131,697
Dividends 84,257
Foreign taxes withheld (2,454)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $15,213,500
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,496,837
Distribution fee 50,833
Shareholder servicing costs 70,060
Administrative services fee 28,138
Trustees' compensation 2,290
Custodian fee 71,256
Printing 59,606
Auditing fees 26,491
Legal fees 10,742
Shareholder solicitation expenses 48,591
Miscellaneous 42,420
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $1,907,264
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (18,751)
Reduction of expenses by investment adviser (56,285)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $1,832,228
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $13,381,272
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $3,497,051
Foreign currency transactions 316,565
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $3,813,616
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(17,229,203)
Translation of assets and liabilities in foreign currencies 367,326
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(16,861,877)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(13,048,261)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $333,011
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED
6/30/05 YEAR ENDED
(UNAUDITED) 12/31/04
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $13,381,272 $26,658,652
Net realized gain (loss) on investments and foreign currency transactions 3,813,616 5,227,369
Net unrealized gain (loss) on investments and foreign currency translation (16,861,877) 2,373,798
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $333,011 $34,259,819
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(23,542,816) $(16,152,927)
Service Class (3,786,010) (2,136,379)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(27,328,826) $(18,289,306)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $(41,520,685) $58,638,276
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $(68,516,500) $74,608,789
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 434,808,669 360,199,880
At end of period (including accumulated undistributed net investment income of
$13,447,921 and $27,395,475, respectively) $366,292,169 $434,808,669
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the series' operation). Certain information reflects financial
results for a single series share. The total returns in the table represent the rate by which an investor would have earned (or
lost) on an investment in the series (assuming reinvestment of all distributions) held for the entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED ------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $10.37 $9.97 $8.81 $9.22 $9.84 $11.49
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.34 $0.68 $0.68 $0.73 $0.90 $1.05
Net realized and unrealized gain (loss) on
investments and foreign currency (0.31) 0.19 0.87 (0.50) (0.68) (1.75)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.87 $1.55 $0.23 $0.22 $(0.70)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.69) $(0.47) $(0.39) $(0.64) $(0.84) $(0.95)
Net asset value, end of period $9.71 $10.37 $9.97 $8.81 $9.22 $9.84
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.50++*** 9.15 17.96 2.56 2.07*** (6.67)***
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.93+ 0.86 0.89 0.88 1.01 0.99
Expenses after expense reductions## 0.90+ 0.89^^ 0.90^^ 0.90^^ 0.91 0.95
Net investment income(S) 6.77+ 6.86 7.23 8.32 9.53 9.79
Portfolio turnover 33 63 82 68 64 70
Net assets at end of period (000 Omitted) $357,465 $379,246 $319,245 $120,711 $84,515 $62,113
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ----------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00**
(UNAUDITED)
Net asset value, beginning of period $10.29 $9.91 $8.77 $9.20 $9.86 $10.56
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#(S)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.37 $0.65 $0.65 $0.70 $0.71 $0.80
Net realized and unrealized gain (loss) on investments
and foreign currency (0.34) 0.19 0.88 (0.49) (0.54) (1.50)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.03 $0.84 $1.53 $0.21 $0.17 $(0.70)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.67) $(0.46) $(0.39) $(0.64) $(0.83) $--
Net asset value, end of period $9.65 $10.29 $9.91 $8.77 $9.20 $9.86
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)& 0.49++*** 8.82 17.70 2.33 1.62*** (6.63)++***
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.18+ 1.11 1.14 1.13 1.21 1.19+
Expenses after expense reductions## 1.15+ 1.14^^ 1.15^^ 1.15^^ 1.11 1.15+
Net investment income(S) 6.34+ 6.62 6.99 8.16 8.97 10.50+
Portfolio turnover 33 63 82 68 64 70
Net assets at end of period (000 Omitted) $8,827 $55,562 $40,955 $17,190 $3,182 $0+++
- -----------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Service Class net assets were less than $500.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
** For the period from the class' inception, May 1, 2000 (Service Class), through the stated period ended.
*** Certain expenses have been reduced without which performance would have been lower.
^^ Ratio includes a reimbursement fee for expenses borne by MFS in prior years under the then existing expense
reimbursement agreement.
(S) Effective January 1, 2001 the series adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing and accreting all premiums and discounts on debt securities. Per
share data and ratios for periods prior to January 1, 2001 have not been restated to reflect this change.
(+) 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.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS High Income Series (the series) is a diversified series of MFS Variable
Insurance Trust (the Trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each series of the trust are separate accounts of insurance companies, which
offer variable annuity and/or life insurance products. As of June 30, 2005,
there were 33 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions. The series can invest in
foreign securities. Investments in foreign securities are vulnerable to the
effects of changes in the relative values of the local currency and the U.S.
dollar and to the effects of changes in each country's legal, political, and
economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) in the series' portfolio are valued at an evaluated
bid price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the series' portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the
extent there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Forward foreign currency
contracts are valued using spot rates and forward points as reported by an
independent pricing source. Short-term obligations with a remaining maturity
in excess of 60 days will be valued upon dealer-supplied valuations. All other
short-term obligations in the series' portfolio are valued at amortized cost,
which approximates market value as determined by the Board of Trustees.
Investment valuations, other assets, and liabilities initially expressed in
foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates. When pricing service information or market
quotations are not readily available, securities are priced at fair value as
determined under the direction of the Board of Trustees. For example,
significant events (such as movement in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign
markets close (where the security is principally traded) and the time that the
series calculates its net asset value (generally, the close of the NYSE) that
may impact the value of securities traded in these foreign markets. In these
cases, the series may utilize information from an external vendor or other
sources to adjust closing market quotations of foreign equity securities to
reflect what it believes to be the fair value of the securities as of the
series' valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The series may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The series may enter into
forward foreign currency exchange contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. The series may also use contracts in a manner
intended to protect foreign currency- denominated securities from declines in
value due to unfavorable exchange rate movements. For non-hedging purposes, the
series may enter into contracts with the intent of changing the relative
exposure of the series' portfolio of securities to different currencies to take
advantage of anticipated changes. The forward foreign currency exchange
contracts are adjusted by the daily exchange rate of the underlying currency and
any gains or losses are recorded as unrealized until the contract settlement
date. On contract settlement date, the gains or losses are recorded as realized
gains or losses on foreign currency transactions.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with U.S. generally accepted accounting principles. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the series.
Legal fees and other related expenses incurred to preserve and protect the value
of a security owned are added to the cost of the security; other legal fees are
expensed. Capital infusions made directly to the security issuer, which are
generally non-recurring, incurred to protect or enhance the value of high-yield
debt securities, are reported as additions to the cost basis of the security.
Costs that are incurred to negotiate the terms or conditions of capital
infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. During the six months ended June 30, 2005 the series' custodian fees
were reduced by $18,566 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of the
series. For the six months ended June 30, 2005 the series' miscellaneous
expenses were reduced by $185 under this agreement. These amounts are shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, wash sales, defaulted bonds, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $18,289,306 $9,048,084
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $27,314,965
Capital loss carryforward (11,058,595)
Unrealized appreciation (depreciation) 16,363,595
Other temporary differences (247,279)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on December 31, 2009 ($2,170,077) and December
31, 2010 ($8,888,518).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with MFS
to provide overall investment advisory and administrative services, and
general office facilities. The management fee is computed daily and paid
monthly at an annual rate of 0.75% of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the
series' operating expenses, exclusive of management and distribution and
certain other fees and expenses, such that operating expenses do not exceed
0.15% annually of the series' average daily net assets. This is reflected as a
reduction of total expenses in the Statement of Operations. This contractual
fee arrangement will continue until April 30, 2006 unless the series' Board of
Trustees consents to an earlier revision or termination of this agreement.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the six months
ended June 30, 2005 the fee was $69,852, which equated to 0.035% annually of the
series' average daily net assets. MFSC also receives payment from the series for
out-of-pocket expenses paid by MFSC on behalf of the series. For the six months
ended June 30, 2005 these costs amounted to $152.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0141% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons. The series does not pay compensation
directly to Trustees who are officers of the investment adviser, or to
officers of the series, all of whom receive remuneration for their services to
the series from MFS. Certain officers and Trustees of the series are officers
or directors of MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service
Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $927, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$122,849,352 and $155,986,749, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $361,885,172
----------------------------------------------------
Gross unrealized appreciation $8,007,106
Gross unrealized depreciation (7,377,803)
----------------------------------------------------
Net unrealized appreciation (depreciation) $629,303
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 4,390,030 $43,789,516 11,628,103 $115,946,616
Shares issued to shareholders in reinvestment
of distributions 2,499,237 23,542,616 1,689,637 16,152,927
Shares reacquired (6,666,199) (67,224,723) (8,762,515) (85,926,955)
- ------------------------------------------------------------------------------------------------------------------------------
Net change 223,068 $107,409 4,555,225 $46,172,588
SERVICE CLASS SHARES
Shares sold 457,143 $4,615,991 1,515,983 $14,978,014
Shares issued to shareholders in reinvestment
of distributions 404,499 3,786,010 224,634 2,136,273
Shares reacquired (5,346,492) (50,030,095) (475,551) (4,648,599)
- ------------------------------------------------------------------------------------------------------------------------------
Net change (4,484,850) $(41,628,094) 1,265,066 $12,465,688
On May 2, 2005, the series paid redemption proceeds of $56,703,559 to a
shareholder that comprised 14% of the outstanding voting shares of the series.
The redeeming shareholder voluntarily reimbursed the series for trading costs
incurred on security sales that were required to fund the redemption.
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $2,414 and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
(7) FINANCIAL INSTRUMENTS
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the series has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
Sales and purchases in the table below are netted by currency.
NET
IN UNREALIZED
CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
SALES
8/08/05 - 8/24/05 EUR 4,910,725 $5,994,277 $5,945,790 $48,487
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURCHASES
8/08/05 EUR 244,182 $300,343 $295,593 $(4,750)
- --------------------------------------------------------------------------------
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown on
page 14.
At June 30, 2005, the series had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) RESTRICTED SECURITIES
At June 30, 2005, the series owned the following restricted securities which
are subject to legal or contractual restrictions on resale, excluding
securities issued under Rule 144A, constituting 0.03% of net assets which may
not be publicly sold without registration under the Securities Act of 1933.
The series does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations
furnished by dealers or by a pricing service, or if not available, in good
faith at the direction of the Trustees.
DATES OF
DESCRIPTION ACQUISITION SHARES COST VALUE
Corporation Durango S.A., de C.V. 6/18/02-10/05/04 59,326 $0 $46,089
Sind Holdings, Inc. 12/15/99 539 200,492 56,811
- -----------------------------------------------------------------------------------------------------------------------
$102,900
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS High Income Series, which was held
on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
---------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn $6,200,001,830.46 $242,746,643.71
- --------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- --------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- --------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- --------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- --------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- --------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- --------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- --------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- --------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- --------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- --------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VHI-SEM 8/05 5M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) RESEARCH BOND SERIES
(FORMERLY MFS(R) BOND SERIES)
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) RESEARCH BOND SERIES
Objective: Seeks total return (high current income and long-term growth of
capital).
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 10
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 15
- ----------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 19
- ----------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 19
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 19
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 19
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
* NOTE TO CONTRACT OWNERS: PRIOR TO MAY 1, 2005, MFS(R) RESEARCH BOND SERIES
WAS KNOWN AS MFS(R) BOND SERIES. THE SERIES' NAME WAS CHANGED TO BETTER
REFLECT ITS NEW PRIMARY INVESTMENT OBJECTIVE OF ONE SEEKING TOTAL RETURN
(HIGH CURRENT INCOME AND LONG-TERM GROWTH OF CAPITAL) THAN ONE SEEKING
PRIMARILY TO PROVIDE AS HIGH A LEVEL OF CURRENT INCOME AS IS BELIEVED TO BE
CONSISTENT WITH PRUDENT INVESTMENT RISK AND SECONDARILY TO PROTECT
SHAREHOLDERS' CAPITAL.
- --------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Bonds 98.0%
Cash & Other Net Assets 2.0%
TOP TEN HOLDINGS
U.S. Treasury Bonds, 9.375%, 20061 1.2%
------------------------------------------------
U.S. Treasury Notes, 6.125%, 2007 6.4%
------------------------------------------------
Fannie Mae, 5.5%, 15 yr 4.9%
------------------------------------------------
U.S. Treasury Notes, 4.375%, 2007 2.8%
------------------------------------------------
Fannie Mae, 5.5%, 30 yr 2.0%
------------------------------------------------
Metropolitan Transportation Authority
Rev., NY, "A", AMBAC, 5%, 2033 1.8%
------------------------------------------------
Fannie Mae, 6%, 15 yr 1.7%
------------------------------------------------
U.S. Treasury Notes, 5.625%, 2008 1.6%
------------------------------------------------
U.S. Treasury Notes, 4%, 2015 1.5%
------------------------------------------------
Fannie Mae, 6%, 2012 - 2017 1.4%
------------------------------------------------
BOND MARKET SECTORS*
U.S. Gov't Treasuries 30.6%
------------------------------------------------
High Grade Corporates 28.6%
------------------------------------------------
Mortgage-Backed Securities 9.9%
------------------------------------------------
U.S. Gov't Agencies 8.8%
------------------------------------------------
Commercial Mortgage-Backed Securities 6.4%
------------------------------------------------
High Yield Corporates 5.7%
------------------------------------------------
Asset-Backed Securities 3.4%
------------------------------------------------
Municipal Bonds 3.0%
------------------------------------------------
Cash & Other Net Assets 2.0%
------------------------------------------------
Emerging Market Bonds 1.4%
------------------------------------------------
International Bonds 0.2%
------------------------------------------------
CREDIT QUALITY OF BONDS**
AAA 55.7%
------------------------------------------------
AA 4.5%
------------------------------------------------
A 6.5%
------------------------------------------------
BBB 21.8%
------------------------------------------------
BB 7.7%
------------------------------------------------
B 0.6%
------------------------------------------------
Not Rated 3.2%
------------------------------------------------
PORTFOLIO FACTS
Average Duration 4.4
------------------------------------------------
Average Life 7.6 yrs.
------------------------------------------------
Average Maturity*** 11.6 yrs.
------------------------------------------------
Average Quality**** AA-
------------------------------------------------
Average Short Term Quality A-1
------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments
as of 6/ 30/05.
*** The average maturity shown is calculated using the final stated maturity
on the portfolio's holdings without taking into account any holdings which
have been pre-refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Portfolio Average Credit Quality rating is based upon a market
weighted average of portfolio holdings.
Percentages are based on net assets as of 6/30/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
JANUARY 1, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, January 1, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 1/01/05-
Share Class Ratio 1/01/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 0.74% $1,000.00 $1,016.00 $3.70
Initial -----------------------------------------------------------------------
Class Hypothetical* 0.74% $1,000.00 $1,021.12 $3.71
- -------------------------------------------------------------------------------
Actual 0.99% $1,000.00 $1,014.90 $4.95
Service -----------------------------------------------------------------------
Class Hypothetical* 0.99% $1,000.00 $1,019.89 $4.96
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year.
Effective May 1, 2005, the series' operating expense reduction was increased
from 0.15% to 0.20%, and a 0.10% management fee waiver was put in place (as
described in Note 3 of the Notes to the Financial Statements). Had these
expense reductions been in effect throughout the entire six month period, the
annualized expense ratio would have been lower by 0.10% for each share class,
and the expenses paid during the period would have been approximately $0.50
lower for each share class.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Bonds - 97.0%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 90,000 $ 88,650
News America Holdings, 8.5%, 2025 152,000 192,872
- -----------------------------------------------------------------------------------------------------------------------
$ 281,522
- -----------------------------------------------------------------------------------------------------------------------
Airlines - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.545%, 2019 $ 82,376 $ 82,465
Continental Airlines, Inc., 6.648%, 2019 68,791 67,881
- -----------------------------------------------------------------------------------------------------------------------
$ 150,346
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Miller Brewing Co., 5.5%, 2013# $ 119,000 $ 123,321
- -----------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 9.8%
- -----------------------------------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I, 7%, 2029 $ 90,000 $ 92,630
Asset Securitization Corp., FRN, 8.0064%, 2026 180,000 187,784
Capital One Auto Finance Trust, 2.47%, 2010 250,000 245,848
Citibank Credit Card Issuance Trust, 6.65%, 2008 50,000 51,135
Commercial Mortgage Acceptance Corp., 5.44%, 2013# 88,000 90,448
Commercial Mortgage Acceptance Corp., 1.1555%, 2030^ 1,522,851 55,453
Commercial Mortgage Acceptance Corp., 6.04%, 2030 65,000 68,278
Commercial Mortgage Acceptance Corp., 7.03%, 2031 50,000 54,584
Countrywide Asset-Backed Certificates, 4.575%, 2035 20,000 20,094
CPS Auto Receivables Trust, 3.52%, 2009# 31,914 31,670
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033# 92,000 95,680
Deutsche Mortgage & Asset Receiving Corp., FRN, 6.538%, 2031 230,609 241,744
DLJ Commercial Mortgage Corp., 6.04%, 2031 100,000 101,710
DLJ Commercial Mortgage Corp., FRN, 7.6144%, 2032 110,000 122,877
Drive Auto Receivables Trust, 2.5%, 2009# 87,000 85,008
Drivetime Auto Owner Trust, 1.918%, 2008# 123,655 122,476
E*TRADE RV & Marine Trust, 3.62%, 2018 60,000 59,268
Falcon Franchise Loan LLC, FRN, 3.804%, 2025^ 419,517 72,898
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029# 65,000 73,330
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 60,000 57,649
GMAC Commercial Mortgage Securities, Inc., 7.9079%, 2034# 110,000 122,092
Greenwich Capital Commercial Funding Corp., 4.305%, 2042 183,329 183,275
Holmes Financing PLC, 3.8606%, 2040 78,000 78,317
IKON Receivables Funding LLC, 3.27%, 2011 95,000 94,232
Lehman Brothers Commercial Conduit Mortgage Trust, 1.1563%, 2030^ 954,405 29,180
Lehman Brothers Commercial Conduit Mortgage Trust, 6.78%, 2031 105,000 113,553
Morgan Stanley Capital I, Inc., 0.7546%, 2030^# 2,384,934 49,481
Morgan Stanley Capital I, Inc., 6.86%, 2010 145,000 149,585
Morgan Stanley Capital I, Inc., 7.3%, 2030# 115,000 120,883
Morgan Stanley Capital I, Inc., 5.72%, 2032 124,379 130,856
Mortgage Capital Funding, Inc., FRN, 0.8309%, 2031^ 1,331,698 25,583
New Century Home Equity Loan Trust, 4.532%, 2027 350,000 350,000
Nomura Asset Acceptance Corp., FRN, 4.423%, 2034 150,000 149,201
Prudential Securities Secured Financing Corp., 7.348%, 2013# 125,000 138,368
Residential Asset Mortgage Products, Inc., 3.49%, 2029 8,710 8,689
TIAA Real Estate CDO Ltd., 7.17%, 2032# 53,453 55,643
- -----------------------------------------------------------------------------------------------------------------------
$ 3,729,502
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 5.625%, 2008 $ 112,000 $ 106,733
Ford Motor Credit Co., 7.875%, 2010 193,000 190,723
General Motors Acceptance Corp., 6.75%, 2014 171,000 152,989
General Motors Corp., 8.375%, 2033 108,000 90,180
Navistar International Corp., 7.5%, 2011 90,000 91,800
- -----------------------------------------------------------------------------------------------------------------------
$ 632,425
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 7.2%
- -----------------------------------------------------------------------------------------------------------------------
Abbey National Capital Trust I, 8.963% to 2030, FRN to 2049 $ 86,000 $ 125,430
Banco Mercantil del Norte S.A., FRN, 5.875%, 2014# 92,000 93,495
Bank of America Corp., 7.4%, 2011 315,000 360,511
Barclays Bank PLC, 8.55% to 2011, FRN to 2049# 69,000 83,012
BBVA Bancomer Capital Trust I, 10.5%, 2011# 102,000 105,953
BNP Paribas, 5.186%, 2049# 174,000 175,917
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049# 123,000 120,838
Citigroup, Inc., 5%, 2014 163,000 166,740
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049# 163,000 175,949
Kazkommerts International B.V., 8.5%, 2013 106,000 112,360
Mizuho Financial Group, Inc., 5.79%, 2014# 153,000 160,933
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049# 51,000 56,674
Popular North America, Inc., 4.25%, 2008 98,000 98,008
RBS Capital Trust II, 6.425% to 2034, FRN to 2049 121,000 134,221
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049# 97,000 103,798
UFJ Finance Aruba AEC, 6.75%, 2013 129,000 143,861
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049# 45,000 54,032
Wachovia Corp., 4.875%, 2014 82,000 83,351
Wachovia Corp., 6.605%, 2025 164,000 193,213
Wells Fargo & Co., 6.45%, 2011 165,000 181,997
- -----------------------------------------------------------------------------------------------------------------------
$ 2,730,293
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Comcast Corp., 5.65%, 2035 $ 80,000 $ 79,665
TCI Communications Financing III, 9.65%, 2027 363,000 411,331
TCI Communications, Inc., 9.8%, 2012 72,000 91,706
- -----------------------------------------------------------------------------------------------------------------------
$ 582,702
- -----------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.25%, 2007 $ 184,000 $ 198,185
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 165,000 183,447
- -----------------------------------------------------------------------------------------------------------------------
$ 381,632
- -----------------------------------------------------------------------------------------------------------------------
Building - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 135,000 $ 143,739
CRH North America, Inc., 6.95%, 2012 93,000 104,970
- -----------------------------------------------------------------------------------------------------------------------
$ 248,709
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Dow Chemical Co., 5%, 2007 $ 83,000 $ 84,299
Dow Chemical Co., 5.75%, 2008 62,000 65,020
Nova Chemicals Corp., 6.5%, 2012 45,000 43,650
- -----------------------------------------------------------------------------------------------------------------------
$ 192,969
- -----------------------------------------------------------------------------------------------------------------------
Conglomerates - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 $ 80,000 $ 89,497
Tyco International Group S.A., 6.75%, 2011 166,000 184,277
- -----------------------------------------------------------------------------------------------------------------------
$ 273,774
- -----------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Litton Industries, Inc., 8%, 2009 $ 165,000 $ 187,671
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Anderson Exploration Ltd., 6.75%, 2011 $ 93,000 $ 101,745
Chesapeake Energy Corp., 7.5%, 2014 35,000 37,975
Kerr-McGee Corp., 6.95%, 2024 113,000 116,760
Ocean Energy, Inc., 7.625%, 2005 78,000 78,000
- -----------------------------------------------------------------------------------------------------------------------
$ 334,480
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $ 77,000 $ 92,906
- -----------------------------------------------------------------------------------------------------------------------
Entertainment - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 $ 111,000 $ 113,201
Walt Disney Co., 6.375%, 2012 115,000 127,177
- -----------------------------------------------------------------------------------------------------------------------
$ 240,378
- -----------------------------------------------------------------------------------------------------------------------
Financial Institutions - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.7%, 2007 $ 40,000 $ 42,811
HSBC Finance Corp., 6.75%, 2011 46,000 51,058
International Lease Finance Corp., 5%, 2010 72,000 73,419
- -----------------------------------------------------------------------------------------------------------------------
$ 167,288
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Cadbury Schweppes PLC, 5.125%, 2013# $ 130,000 $ 132,837
- -----------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.25%, 2028 $ 130,000 $ 139,100
MeadWestvaco Corp., 6.8%, 2032 105,000 124,688
- -----------------------------------------------------------------------------------------------------------------------
$ 263,788
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Harrahs Operation, Inc., 5.625%, 2015# $ 109,000 $ 111,022
MGM Mirage, Inc., 5.875%, 2014 115,000 111,694
- -----------------------------------------------------------------------------------------------------------------------
$ 222,716
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 193,000 $ 187,186
Genworth Financial, Inc., 5.75%, 2014 102,000 109,390
- -----------------------------------------------------------------------------------------------------------------------
$ 296,576
- -----------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 135,000 $ 139,809
Fund American Cos., Inc., 5.875%, 2013 90,000 93,740
Willis Group North America, Inc., 5.625%, 2015 105,000 105,675
- -----------------------------------------------------------------------------------------------------------------------
$ 339,224
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Ingersoll Rand Co., 6.25%, 2006 $ 75,000 $ 76,294
- -----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 $ 110,000 $ 125,016
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 $ 122,000 $ 147,506
- -----------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 9.4%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 4.17%, 2013 $ 21,363 $ 20,617
Fannie Mae, 4.6%, 2014 50,508 51,033
Fannie Mae, 4.56%, 2015 57,623 58,017
Fannie Mae, 4.665%, 2015 39,398 39,958
Fannie Mae, 4.69%, 2015 31,852 32,363
Fannie Mae, 4.7%, 2015 44,858 45,602
Fannie Mae, 4.74%, 2015 50,000 50,970
Fannie Mae, 4.85%, 2015 42,640 43,798
Fannie Mae, 4.87%, 2015 35,600 36,802
Fannie Mae, 4.89%, 2015 30,906 31,834
Fannie Mae, 4.925%, 2015 126,434 130,682
Fannie Mae, 6%, 2012 - 2017 506,507 525,880
Fannie Mae, 5.5%, 2017 - 2035 1,833,118 1,873,688
Fannie Mae, 4.5%, 2018 296,504 295,369
Fannie Mae, 4.88%, 2020 49,450 50,825
Fannie Mae, 7.5%, 2030 - 2031 91,676 97,975
Fannie Mae, 6.5%, 2032 198,405 205,675
Fannie Mae TBA, 5.5%, 2099 150,000 152,016
Freddie Mac, 5.5%, 2019 100,306 103,011
Freddie Mac, 6%, 2034 59,081 60,621
- -----------------------------------------------------------------------------------------------------------------------
$ 3,906,736
- -----------------------------------------------------------------------------------------------------------------------
Municipals - 3.0%
- -----------------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority Rev., NY, "A", AMBAC, 5%, 2033 $ 650,000 $ 697,236
New York, NY, City Municipal Water Finance Authority, Water & Sewer Systems Rev., "D",
5%, 2037 415,000 441,398
- -----------------------------------------------------------------------------------------------------------------------
$ 1,138,634
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 204,000 $ 242,318
Enterprise Products Operating LP, 6.875%, 2033 155,000 174,776
Kinder Morgan Energy Partners LP, 7.4%, 2031 175,000 213,221
Kinder Morgan, Inc., 6.8%, 2008 55,000 58,102
Magellan Midstream Partners LP, 5.65%, 2016 66,000 68,219
- -----------------------------------------------------------------------------------------------------------------------
$ 756,636
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
Wyeth, 5.5%, 2013 $ 130,000 $ 136,819
- -----------------------------------------------------------------------------------------------------------------------
Pollution Control - 0.3%
- -----------------------------------------------------------------------------------------------------------------------
Waste Management, Inc., 7.1%, 2026 $ 98,000 $ 113,783
- -----------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.3%, 2012 $ 155,000 $ 169,780
- -----------------------------------------------------------------------------------------------------------------------
Real Estate - 2.3%
- -----------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc., 5%, 2015 $ 100,000 $ 99,974
EOP Operating LP, 8.375%, 2006 102,000 105,016
EOP Operating LP, 6.8%, 2009 168,000 180,057
HRPT Properties Trust, 6.25%, 2016 125,000 135,340
Simon Property Group LP, 6.375%, 2007 135,000 140,939
Simon Property Group LP, 6.35%, 2012 88,000 95,974
Vornado Realty Trust, 5.625%, 2007 135,000 137,601
- -----------------------------------------------------------------------------------------------------------------------
$ 894,901
- -----------------------------------------------------------------------------------------------------------------------
Restaurants - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 135,000 $ 163,569
- -----------------------------------------------------------------------------------------------------------------------
Retailers - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 70,000 $ 73,500
Dollar General Corp., 8.625%, 2010 120,000 136,800
- -----------------------------------------------------------------------------------------------------------------------
$ 210,300
- -----------------------------------------------------------------------------------------------------------------------
Supranational - 0.2%
- -----------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.875%, 2012 $ 61,000 $ 68,299
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.75%, 2031 $ 69,000 $ 96,713
Mobile TeleSystems OJSC, 9.75%, 2008# 76,000 81,700
Nextel Communications, Inc., 5.95%, 2014 150,000 155,813
- -----------------------------------------------------------------------------------------------------------------------
$ 334,226
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
BellSouth Corp., 6.55%, 2034 $ 100,000 $ 113,860
Citizens Communications Co., 9%, 2031 75,000 76,875
Deutsche Telekom International Finance B.V., 8.75%, 2030 84,000 113,734
Telecom Italia Capital, 6%, 2034# 110,000 112,302
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 70,000 71,419
Telecomunicaciones de Puerto Rico, Inc., 6.8%, 2009 63,000 67,449
Verizon New York, Inc., 7.375%, 2032 168,000 197,319
- -----------------------------------------------------------------------------------------------------------------------
$ 752,958
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 197,000 $ 200,448
- -----------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.4%
- -----------------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $ 110,000 $ 141,416
- -----------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 9.5%
- -----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2006 $ 325,000 $ 323,169
Fannie Mae, 6%, 2008 600,000 634,227
Fannie Mae, 5.25%, 2012 52,000 54,810
Fannie Mae, 6.125%, 2012 253,000 282,937
Federal Home Loan Bank, 3.25%, 2006 250,000 248,626
Freddie Mac, 4.875%, 2013 200,000 209,255
Small Business Administration, 4.34%, 2024 216,823 214,894
Small Business Administration, 4.93%, 2024 172,493 176,180
Small Business Administration, 4.99%, 2024 167,036 170,973
Small Business Administration, 4.625%, 2025 350,000 351,483
Small Business Administration, 4.86%, 2025 350,000 355,808
Small Business Administration, 5.11%, 2025 269,000 276,809
- -----------------------------------------------------------------------------------------------------------------------
$ 3,299,171
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 29.9%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 9.375%, 2006 $ 4,091,000 $ 4,254,800
U.S. Treasury Bonds, 9.875%, 2015 54,000 80,709
U.S. Treasury Bonds, 5.375%, 2031 387,000 456,660
U.S. Treasury Notes, 7%, 2006 350,000 362,127
U.S. Treasury Notes, 4.375%, 2007 1,045,000 1,058,919
U.S. Treasury Notes, 6.125%, 2007 2,307,000 2,422,890
U.S. Treasury Notes, 5.625%, 2008 587,000 617,955
U.S. Treasury Notes, 4%, 2010 340,000 343,719
U.S. Treasury Notes, 6.5%, 2010 109,000 121,641
U.S. Treasury Notes, 5%, 2011 145,000 154,589
U.S. Treasury Notes, TIPS, 3%, 2012 363,576 399,336
U.S. Treasury Notes, TIPS, 2%, 2014 563,377 580,381
U.S. Treasury Notes, 4%, 2015 559,000 560,987
- -----------------------------------------------------------------------------------------------------------------------
$ 11,414,713
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.5%
- -----------------------------------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 $ 206,000 $ 244,435
Dominion Resources Inc., 5.95%, 2035 120,000 124,297
DTE Energy Co., 7.05%, 2011 115,000 128,758
Duke Capital Corp., 8%, 2019 90,000 111,388
Enersis S.A., 7.375%, 2014 125,000 134,919
Exelon Generation Co. LLC, 6.95%, 2011 173,000 194,073
Northeast Utilities, 8.58%, 2006 38,657 39,387
NorthWestern Corp., 5.875%, 2014# 5,000 5,125
NRG Energy, Inc., 8%, 2013# 125,000 131,875
Reliant Energy, Inc., 8.125%, 2005 119,000 119,124
W3A Funding Corp., 8.09%, 2017 94,120 104,767
- -----------------------------------------------------------------------------------------------------------------------
$ 1,338,148
- -----------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $36,401,734) $36,994,412
- -----------------------------------------------------------------------------------------------------------------------
Short-Term Obligation - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Citigroup Funding, Inc., 3.43%, due 7/01/05, at Amortized Cost< $844,000 $844,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $37,245,734) $37,838,412
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.8% 298,833
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $38,137,245
- -----------------------------------------------------------------------------------------------------------------------
< The rate shown represents an annualized yield at time of purchase.
# SEC Rule 144A restriction.
^ 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.
AMBAC = AMBAC Indemnity Corp.
FRN = Floating Rate Note. The interest rate is the rate in effect as of period end.
TBA = To Be Announced
TIPS = Treasury Inflation Protected Security.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets and liabilities
composing the total value of your series.
AT 6/30/05
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $37,245,734) $37,838,412
Cash 7
Receivable for investments sold 159,970
Receivable for series shares sold 16,102
Interest receivable 542,398
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $38,556,889
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $182,955
Payable for TBA purchase commitments 151,828
Payable for series shares reacquired 65,214
Payable to affiliates
Management fee 495
Shareholder servicing costs 41
Distribution fee 68
Administrative services fee 14
Accrued expenses and other liabilities 19,029
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $419,644
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $38,137,245
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $36,459,714
Unrealized appreciation on investments and translation of assets and liabilities
in foreign currencies 592,678
Accumulated undistributed net realized gain on investments and foreign currency
transactions 259,587
Accumulated undistributed net investment income 825,266
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $38,137,245
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,285,215
- -----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $28,364,905 / 2,440,545 shares of beneficial interest outstanding) $11.62
- -----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $9,772,340 / 844,670 shares of beneficial interest outstanding) $11.57
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income and paid in expenses. It also describes any
gains and/or losses generated by series operations.
SIX MONTHS ENDED 6/30/05
NET INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Interest income $967,825
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $107,582
Distribution fee 9,956
Shareholder servicing costs 6,378
Administrative services fee 2,551
Trustees' compensation 691
Custodian fee 19,236
Printing 10,414
Auditing fees 27,207
Legal fees 20,301
Shareholder solicitation expenses 2,343
Miscellaneous 4,250
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $210,909
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (798)
Reduction of expenses by investment adviser (68,549)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $141,562
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $826,263
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $503,528
Futures contracts 6,164
Foreign currency transactions 612
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $510,304
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(765,036)
Futures contracts 5,716
Translation of assets and liabilities in foreign currencies (906)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $(760,226)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $(249,922)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $576,341
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
6/30/05 12/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $826,263 $1,642,957
Net realized gain (loss) on investments and foreign currency transactions 510,304 676,873
Net unrealized gain (loss) on investments and foreign currency translation (760,226) (354,958)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $576,341 $1,964,872
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income
Initial Class $(1,414,791) $(1,810,680)
Service Class (421,473) (201,561)
From net realized gain on investments and foreign currency transactions
Initial Class (238,802) --
Service Class (72,865) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(2,147,931) $(2,012,241)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $4,269,698 $1,086,600
- -----------------------------------------------------------------------------------------------------------------------------
Total change in net assets $2,698,108 $1,039,231
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
At beginning of period 35,439,137 34,399,906
At end of period (including accumulated undistributed net investment income of
$825,266 and $1,835,267, respectively) $38,137,245 $35,439,137
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series' financial performance for the semiannual
period and the past 5 fiscal years (or, if shorter, the period of the series' operations). Certain information reflects
financial results for a single series share. The total returns in the table represent the rate by which an investor
would have earned (or lost) on an investment in the series (assuming reinvestment of all distributions) held for the
entire period.
INITIAL CLASS
SIX MONTHS YEARS ENDED 12/31
ENDED --------------------------------------------------------------
6/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning of period $12.16 $12.19 $11.82 $11.52 $11.32 $10.93
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.27 $0.59 $0.62 $0.67 $0.72 $0.76
Net realized and unrealized gain (loss) on
investments and foreign currency (0.09) 0.11 0.45 0.30 0.22 0.20
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.18 $0.70 $1.07 $0.97 $0.94 $0.96
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.62) $(0.73) $(0.70) $(0.67) $(0.74) $(0.57)
From net realized gain on investments and
foreign currency transactions (0.10) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.72) $(0.73) $(0.70) $(0.67) $(0.74) $(0.57)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.62 $12.16 $12.19 $11.82 $11.52 $11.32
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&** 1.60++ 6.06 9.34 8.92 8.71 9.21
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.12+ 0.99 0.94 0.92 0.99 0.99
Expenses after expense reductions## 0.74+ 0.75 0.75 0.75 0.75 0.84
Net investment income(S) 4.66+ 4.88 5.04 5.92 6.34 6.95
Portfolio turnover 69 55 116 132 281 303
Net assets at end of period (000 Omitted) $28,365 $28,881 $31,981 $33,755 $31,087 $26,207
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SERVICE CLASS
SIX MONTHS YEARS ENDED 12/31 PERIOD
ENDED ---------------------------------------------- ENDED
6/30/05 2004 2003 2002 2001 12/31/00*
(UNAUDITED)
Net asset value, beginning of period $12.11 $12.16 $11.81 $11.50 $11.29 $10.45
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.26 $0.55 $0.54 $0.53 $0.73 $0.49
Net realized and unrealized gain (loss) on
investments and foreign currency (0.09) 0.12 0.51 0.43^ 0.21 0.35^
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.17 $0.67 $1.05 $0.96 $0.94 $0.84
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.61) $(0.72) $(0.70) $(0.65) $(0.73) $--
From net realized gain on investments and
foreign currency transactions (0.10) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.71) $(0.72) $(0.70) $(0.65) $(0.73) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.57 $12.11 $12.16 $11.81 $11.50 $11.29
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)&(+)** 1.49++ 5.80 9.14 8.81 8.68 8.04++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.37+ 1.24 1.19 1.17 1.19 1.10+
Expenses after expense reductions## 0.99+ 1.00 1.01 1.00 0.95 0.95+
Net investment income(S) 4.44+ 4.66 4.53 5.17 6.23 6.83+
Portfolio turnover 69 55 116 132 281 303
Net assets at end of period (000 Omitted) $9,772 $6,558 $2,419 $419 $0*** $0***
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the Service Class inception, May 1, 2000, through December 31, 2000.
** Certain expenses have been reduced without which performance would have been lower.
*** Service Class net assets were less than $500.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period
because of the timing of sales of series shares and the amount of per share realized and unrealized gains
and losses at such time.
(S) Effective January 1, 2001, the series adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing and accreting all premiums and discounts on debt securities. Per
share data and ratios for periods prior to January 1, 2001 have not been restated to reflect this change.
& From time to time the series may receive proceeds from litigation settlements, without which performance
would be lower.
(+) 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.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Research Bond Series (formerly MFS Bond Series) (the series) is a
diversified series of MFS Variable Insurance Trust (the trust). The trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The shareholders of each series of the trust are separate
accounts of insurance companies, which offer variable annuity and/or life
insurance products. As of June 30, 2005, there were 30 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Bonds and other fixed income securities (other than
short-term obligations) in the series' portfolio are valued at an evaluated
bid price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates. When pricing service information or
market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the series to
obtain those securities in the event of a default under the repurchase
agreement. The series monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the series under each such repurchase agreement. The series, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
FUTURES CONTRACTS - The series may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the series is
required to deposit with the broker, either in cash or securities, an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the series each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the series. The series' investment in futures
contracts is designed to hedge against anticipated future changes in interest
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in buying
and selling the underlying securities. Investments in currency futures for
purposes other than hedging may be made to change the series' relative position
in one or more currencies without buying and selling portfolio assets.
Investments in equity index contracts or contracts on related options for
purposes other than hedging, may be made when the series has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should interest or exchange rates or securities prices move
unexpectedly, the series may not achieve the anticipated benefits of the
futures contracts and may realize a loss.
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. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the series.
The series may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The series holds, and maintains until settlement date, cash or high-
grade debt obligations in an amount sufficient to meet the purchase price, or
the series may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the series' other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities.
The series may enter into "TBA" (to be announced) sale commitments to hedge
its portfolio positions or to sell mortgage-backed securities it owns under
delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
series. This amount, for the six months ended June 30, 2005, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for foreign currency transactions, amortization and accretion on
debt securities, and wash sales.
The tax character of distributions declared for the years ended December 31,
2004 and December 31, 2003 was as follows:
12/31/04 12/31/03
Distributions declared from:
Ordinary income $2,012,241 $2,049,079
As of December 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,835,267
Undistributed long-term capital gain 310,663
Unrealized appreciation (depreciation) 1,103,191
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of the series' average daily net assets.
Effective May 1, 2005, the investment adviser has contractually agreed to
waive 0.10% of its fee, which amounted to $5,915, and is shown as a reduction
of total expenses in the Statement of Operations. This reduction in the
management fee may be rescinded by MFS only with the approval of the series'
Board of Trustees. The management fee incurred for the six months ended June
30, 2005, was equivalent to an annual effective rate of 0.57% of the series'
average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.20% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, is the distributor of shares of the series. 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 series' distribution plan provides that the series will pay MFD
distribution 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 series to fund variable
annuity and variable life insurance contracts, sponsors of qualified retirement
and pension plans that invest in the series, and affiliates of these
participating insurance companies and plan sponsors) in connection with the
sale and distribution of the Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder
servicing costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee
from the series, for its services as shareholder servicing agent. For the six
months ended June 30, 2005, the fee was $6,293, which equated to 0.035%
annually of the series' average daily net assets. MFSC also receives payment
from the series for out-of-pocket expenses paid by MFSC on behalf of the
series. For the six months ended June 30, 2005, these costs amounted to $40.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size
and relative average net assets.
The administrative services fee incurred for the six months ended June 30,
2005 was equivalent to an annual effective rate of 0.0142% of the series'
average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees
in the form of a retainer, attendance fees, and additional compensation to
Board and Committee chairpersons, and pays no compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFD, and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into
a services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $83, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $19,611,878 $6,754,470
- ------------------------------------------------------------------------------
Investments (non-U.S. government securities) $7,699,839 $16,422,827
- ------------------------------------------------------------------------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $37,486,590
--------------------------------------------------
Gross unrealized appreciation $631,787
Gross unrealized depreciation (279,965)
--------------------------------------------------
Net unrealized appreciation
(depreciation) $351,822
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Six months ended 6/30/05 Year ended 12/31/04
SHARES AMOUNT SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 225,726 $2,659,162 436,249 $5,236,287
Shares issued to shareholders in reinvestment of distributions 144,419 1,653,593 157,450 1,810,680
Shares reacquired (304,458) (3,613,686) (842,512) (10,045,586)
- --------------------------------------------------------------------------------------------------------------------------------
Net change 65,687 $699,069 (248,813) $(2,998,619)
SERVICE CLASS SHARES
Shares sold 298,800 $3,543,113 357,507 $4,267,940
Shares issued to shareholders in reinvestment of distributions 43,363 494,338 17,573 201,561
Shares reacquired (39,043) (466,822) (32,467) (384,282)
- --------------------------------------------------------------------------------------------------------------------------------
Net change 303,120 $3,570,629 342,613 $4,085,219
(6) LINE OF CREDIT
The series and other affiliated funds participate in a $1 billion unsecured
line of credit provided by a syndication of banks under a credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the Federal Reserve
funds rate plus 0.35%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the series for the six months ended June 30, 2005 was $121, and
is included in miscellaneous expense. The series had no significant borrowings
during the six months ended June 30, 2005.
(7) FINANCIAL INSTRUMENTS
The series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include futures contracts. The notional or contractual
amounts of these instruments represent the investment the series has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
RESULTS OF SHAREHOLDER MEETING (unaudited) - 6/30/05
At a special meeting of shareholders of MFS Research Bond Series (formerly MFS
Bond Series), which was held on March 23, 2005, the following action was
taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-------------------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. $6,200,001,830.46 $242,746,643.71
- --------------------------------------------------------------------------------
David H. Gunning 6,212,408,301.43 230,340,172.74
- --------------------------------------------------------------------------------
William R. Gutow 6,208,366,487.51 234,381,986.66
- --------------------------------------------------------------------------------
Michael Hegarty 6,209,214,813.88 233,533,660.29
- --------------------------------------------------------------------------------
J. Atwood Ives 6,201,517,772.03 241,230,702.14
- --------------------------------------------------------------------------------
Amy B. Lane 6,207,755,652.53 234,992,821.64
- --------------------------------------------------------------------------------
Robert J. Manning 6,210,847,081.29 231,901,392.88
- --------------------------------------------------------------------------------
Lawrence T. Perera 6,203,775,282.60 238,973,191.57
- --------------------------------------------------------------------------------
Robert C. Pozen 6,211,789,121.63 230,959,352.54
- --------------------------------------------------------------------------------
J. Dale Sherratt 6,202,492,597.10 240,255,877.07
- --------------------------------------------------------------------------------
Laurie J. Thomsen 6,205,475,472.40 237,273,001.77
- --------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
series' Investment Advisory Agreement with MFS will be available on or before
November 23, 2005 by clicking on "Variable Insurance Trust" in the "Products
and Performance" section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VFB-SEM 8/05 3M
MFS(R) Variable Insurance Trust
SEMIANNUAL REPORT 6/30/05
MFS(R) RESEARCH INTERNATIONAL SERIES
A path for pursuing opportunity
[graphic omitted]
M F S(SM)
INVESTMENT MANAGEMENT(R)
MFS(R) RESEARCH INTERNATIONAL SERIES
Objective: Seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 8
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12
- ----------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY
AGREEMENT 15
- ----------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 17
- ----------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 17
- ----------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Contract Owners,
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and
rebalance regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can
guarantee a profit or protect against a loss, I would voice the opinion that,
to a large extent, a failure to have a plan, diversify contributions, and
rebalance a portfolio annually has been behind many U.S. investors' failure to
reach their long-term financial goals.
For more information on how to apply a disciplined diversification(SM)
strategy to your portfolio, I would urge you to contact your own investment
professional.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
August 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE
Stocks 96.6%
Cash & Other Net Assets 3.4%
TOP TEN HOLDINGS
TOTAL S.A. 2.9%
------------------------------------------------
Samsung Electronics Co. Ltd. 2.8%
------------------------------------------------
Nestle S.A. 2.3%
------------------------------------------------
Roche Holdings AG 2.2%
------------------------------------------------
Vodafone Group PLC 2.1%
------------------------------------------------
Suez S.A. 2.1%
------------------------------------------------
Royal Bank of Scotland Group PLC 2.0%
------------------------------------------------
Mitsui Mining & Smelting Co. Ltd. 1.9%
------------------------------------------------
Telefonica S.A. 1.9%
------------------------------------------------
Schneider Electric S.A. 1.8%
------------------------------------------------
SECTOR WEIGHTINGS
Financial Services 27.3%
------------------------------------------------
Utilities & Communications 11.3%
------------------------------------------------
Energy 8.8%
------------------------------------------------
Technology 8.0%
------------------------------------------------
Health Care 7.8%
------------------------------------------------
Basic Materials 7.1%
------------------------------------------------
Industrial Goods & Services 7.1%
------------------------------------------------
Consumer Staples 6.1%
------------------------------------------------
Leisure 5.2%
------------------------------------------------
Autos & Housing 4.1%
------------------------------------------------
Retailing 2.5%
------------------------------------------------
Transportation 1.3%
------------------------------------------------
COUNTRY WEIGHTINGS
Japan 18.6%
------------------------------------------------
Great Britain 17.7%
------------------------------------------------
France 14.8%
------------------------------------------------
Switzerland 7.6%
------------------------------------------------
South Korea 7.0%
------------------------------------------------
Mexico 3.6%
------------------------------------------------
Spain 3.3%
------------------------------------------------
Germany 3.0%
------------------------------------------------
Netherlands 2.4%
------------------------------------------------
Other 22.0%
------------------------------------------------
Percentages are based on net assets as of 6/30/05.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
SERIES EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
APRIL 29, 2005 THROUGH JUNE 30, 2005.
As a shareholder of the series, you incur ongoing costs, including management
fees; distribution (12b-1) fees; and other series expenses. This example is
intended to help you understand your ongoing costs (in dollars) of investing
in the series 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, April 29, 2005 through June 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below 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 table below provides information
about hypothetical account values and hypothetical expenses based on the
series' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the series' 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 series 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
series' ongoing costs only and do not take into account the fees and expenses
imposed under the variable contracts through which your investment in the
series 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 series) 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
series 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.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 4/29/05-
Share Class Ratio 4/29/05 6/30/05 6/30/05
- -------------------------------------------------------------------------------
Actual 1.10% $1,000.00 $1,016.00 $1.91
Initial -----------------------------------------------------------------------
Class Hypothetical* 1.10% $1,000.00 $1,006.62 $1.91
- -------------------------------------------------------------------------------
Actual 1.35% $1,000.00 $1,015.00 $2.35
Service -----------------------------------------------------------------------
Class Hypothetical* 1.35% $1,000.00 $1,006.20 $2.34
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied by
the number of days in the period, divided by the number of days in the year.
PORTFOLIO OF INVESTMENTS (unaudited) - 6/30/05
The Portfolio of Investments is a complete list of all securities owned by your series.
It is categorized by broad-based asset classes.
Stocks - 96.6%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Airlines - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd.* 4,580 $ 19,989
- -----------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Diageo PLC 2,310 $ 33,940
- -----------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Burberry Group PLC 2,340 $ 16,844
- -----------------------------------------------------------------------------------------------------------------------
Automotive - 2.0%
- -----------------------------------------------------------------------------------------------------------------------
PSA Peugeot Citroen S.A 340 $ 20,055
Toyota Motor Corp. 1,100 39,335
- -----------------------------------------------------------------------------------------------------------------------
$ 59,390
- -----------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 23.3%
- -----------------------------------------------------------------------------------------------------------------------
Aiful Corp. 500 $ 37,134
Akbank T.A.S 2,670 15,330
Anglo Irish Bank Corp. PLC 2,320 28,748
Banco Bilbao Vizcaya Argentaria S.A 2,780 42,730
Bancolombia S.A., ADR 210 3,358
BNP Paribas 680 46,443
Credit Agricole S.A 1,270 32,055
DEPFA Bank PLC 1,050 16,779
Erste Bank der Oesterreichischen Sparkassen AG 600 30,007
Grupo Financiero Inbursa S.A. de C.V 8,340 18,036
Hana Bank 1,040 27,747
HSBC Holdings PLC 2,740 43,688
Kookmin Bk New 550 25,069
Mitsubishi Tokyo Financial Group, Inc. 4 33,771
OTP Bank Ltd., GDR 550 36,686
Powszechna Kasa Oszczednosci Bank Polski S.A 1,820 14,732
Raiffeisen International Bank Holding AG* 60 3,814
Royal Bank of Scotland Group PLC 1,920 57,812
Shinsei Bank Ltd. 5,000 26,837
Takefuji Corp. 720 48,697
UBS AG 660 51,293
UFJ Holdings, Inc. 4 20,742
Unibanco - Uniao de Bancos Brasileiros S.A., ADR 110 4,252
UniCredito Italiano S.p.A 4,280 22,495
- -----------------------------------------------------------------------------------------------------------------------
$ 688,255
- -----------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.7%
- -----------------------------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 640 $ 39,738
Premiere AG* 260 8,989
- -----------------------------------------------------------------------------------------------------------------------
$ 48,727
- -----------------------------------------------------------------------------------------------------------------------
Chemicals - 1.3%
- -----------------------------------------------------------------------------------------------------------------------
Hanwha Chemical Corp. 1,120 $ 13,264
Syngenta AG 240 24,549
- -----------------------------------------------------------------------------------------------------------------------
$ 37,813
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Business Objects S.A.* 690 $ 18,199
- -----------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
LG.Philips LCD Co. Ltd., ADR* 960 $ 21,946
- -----------------------------------------------------------------------------------------------------------------------
Construction - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Italcementi S.p.A 710 $ 7,788
Italcementi S.p.A. - Ordinary 350 5,441
Sekisui Chemical Co. Ltd. 5,000 34,302
Urbi Desarrollos Urbanos S.A. de C.V.* 2,760 15,153
- -----------------------------------------------------------------------------------------------------------------------
$ 62,684
- -----------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Reckitt Benckiser PLC 1,100 $ 32,317
- -----------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.8%
- -----------------------------------------------------------------------------------------------------------------------
Schneider Electric S.A 708 $ 53,160
- -----------------------------------------------------------------------------------------------------------------------
Electronics - 5.2%
- -----------------------------------------------------------------------------------------------------------------------
Royal Philips Electronics N.V 1,160 $ 29,140
Samsung Electronics Co. Ltd., GDR 340 81,345
Seiko Epson Corp. 1,300 43,205
- -----------------------------------------------------------------------------------------------------------------------
$ 153,690
- -----------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Canadian Natural Resources Ltd. 200 $ 7,235
CNOOC Ltd. 64,000 37,826
- -----------------------------------------------------------------------------------------------------------------------
$ 45,061
- -----------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 6.7%
- -----------------------------------------------------------------------------------------------------------------------
BP PLC 4,350 $ 45,229
LUKOIL, ADR 610 22,454
Statoil ASA 2,140 43,438
TOTAL S.A 370 86,558
- -----------------------------------------------------------------------------------------------------------------------
$ 197,679
- -----------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.8%
- -----------------------------------------------------------------------------------------------------------------------
Carrefour S.A 520 $ 25,067
- -----------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.9%
- -----------------------------------------------------------------------------------------------------------------------
China Mengniu Dairy Co. Ltd. 29,000 $ 19,189
Nestle S.A 261 66,611
- -----------------------------------------------------------------------------------------------------------------------
$ 85,800
- -----------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Hilton Group PLC 4,030 $ 20,584
- -----------------------------------------------------------------------------------------------------------------------
Insurance - 2.8%
- -----------------------------------------------------------------------------------------------------------------------
Aviva PLC 3,740 $ 41,518
AXA 1,620 40,247
- -----------------------------------------------------------------------------------------------------------------------
$ 81,765
- -----------------------------------------------------------------------------------------------------------------------
Leisure & Toys - 0.7%
- -----------------------------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 200 $ 20,838
- -----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 5.3%
- -----------------------------------------------------------------------------------------------------------------------
Fanuc Ltd. 400 $ 25,353
Hyundai Mobis 540 36,135
Mitsui Mining & Smelting Co. Ltd. 12,000 56,075
Sandvik AB 1,040 38,470
- -----------------------------------------------------------------------------------------------------------------------
$ 156,033
- -----------------------------------------------------------------------------------------------------------------------
Medical Equipment - 0.5%
- -----------------------------------------------------------------------------------------------------------------------
Synthes, Inc. 140 $ 15,321
- -----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 3.6%
- -----------------------------------------------------------------------------------------------------------------------
Aber Diamond Corp. 910 $ 27,805
Anglo American PLC 1,280 30,017
BHP Billiton PLC 1,190 15,262
Companhia Vale do Rio Doce, ADR 1,120 32,794
- -----------------------------------------------------------------------------------------------------------------------
$ 105,878
- -----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.9%
- -----------------------------------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. 7,000 $ 26,140
- -----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
Tenaris S.A., ADR 210 $ 16,437
- -----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.3%
- -----------------------------------------------------------------------------------------------------------------------
AstraZeneca PLC 940 $ 38,840
Chugai Pharmaceutical Co. Ltd. 2,400 37,053
Roche Holdings AG 520 65,487
Sanofi-Aventis 630 51,524
Tanabe Seiyaku Co. Ltd. 1,000 9,649
Yamanouchi Pharma Ltd. 400 13,671
- -----------------------------------------------------------------------------------------------------------------------
$ 216,224
- -----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Reed Elsevier PLC 2,750 $ 26,252
Yell Group PLC 4,590 34,895
- -----------------------------------------------------------------------------------------------------------------------
$ 61,147
- -----------------------------------------------------------------------------------------------------------------------
Real Estate - 1.2%
- -----------------------------------------------------------------------------------------------------------------------
Consorcio ARA S.A. de C.V 3,060 $ 10,565
Hypo Real Estate Holding AG 530 20,100
Macquarie Goodman Group 1,295 4,015
- -----------------------------------------------------------------------------------------------------------------------
$ 34,680
- -----------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 2.2%
- -----------------------------------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd. 3,000 $ 31,436
Kaneka Corp. 3,000 33,514
- -----------------------------------------------------------------------------------------------------------------------
$ 64,950
- -----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.1%
- -----------------------------------------------------------------------------------------------------------------------
Fast Retailing Co. Ltd. 200 $ 10,389
Grupo Elektra S.A. de C.V 2,980 22,127
Kingfisher PLC 210 920
- -----------------------------------------------------------------------------------------------------------------------
$ 33,436
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Vodafone Group PLC 26,010 $ 63,195
- -----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.5%
- -----------------------------------------------------------------------------------------------------------------------
Nokia Oyj 2,270 $ 37,738
ZTE Corp. 2,400 7,140
- -----------------------------------------------------------------------------------------------------------------------
$ 44,878
- -----------------------------------------------------------------------------------------------------------------------
Telephone Services - 6.2%
- -----------------------------------------------------------------------------------------------------------------------
Deutsche Telekom AG 2,300 $ 42,462
FastWeb S.p.A.* 670 28,808
Royal KPN N.V 3,100 25,938
Singapore Telecommunications Ltd. 19,000 31,234
Telefonica S.A 3,406 55,555
- -----------------------------------------------------------------------------------------------------------------------
$ 183,997
- -----------------------------------------------------------------------------------------------------------------------
Tobacco - 1.0%
- -----------------------------------------------------------------------------------------------------------------------
Swedish Match AB 2,690 $ 30,481
- -----------------------------------------------------------------------------------------------------------------------
Trucking - 0.6%
- -----------------------------------------------------------------------------------------------------------------------
TNT N.V 640 $ 16,209
- -----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.1%
- -----------------------------------------------------------------------------------------------------------------------
Suez S.A 2,310 $ 62,413
- -----------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $2,831,597) $2,855,167
- -----------------------------------------------------------------------------------------------------------------------
Repurchase Agreement - 5.4%
- -----------------------------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 3.35%, dated 6/30/05, due 7/01/05, total to be received $158,015
(secured by various U.S. Treasury and Federal Agency obligations in a jointly traded
account), at Cost $ 158,000 $ 158,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments(+) (Identified Cost, $2,989,597) $3,013,167
- -----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (2.0)% (58,653)
- -----------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,954,514
- -----------------------------------------------------------------------------------------------------------------------
(+) As of June 30, 2005, the series had 68 securities representing $2,150,636 and 72.8% of net assets that were fair
valued in accordance with the policies adopted by the Board of Trustees.
* Non-income producing security.
ADR = American Depository Receipt
GDR = Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your series' balance sheet, which details the assets
and liabilities composing the total value of your series.
AT 6/30/05
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $2,989,597) $3,013,167
Cash 425
Receivable for investments sold 16,975
Receivable for series shares sold 5,831
Interest and dividends receivable 2,308
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $3,038,706
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased $83,867
Payable for series shares reacquired 7
Payable to affiliates
Management fee 73
Accrued expenses and other liabilities 245
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities $84,192
- ----------------------------------------------------------------------------------------------------------------------------
Net assets $2,954,514
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ----------------------------------------------------------------------------------------------------------------------------
Paid-in capital $2,917,962
Unrealized appreciation (depreciation) on investments and translation of assets and
liabilities in foreign currencies 23,524
Accumulated net realized gain (loss) on investments and foreign currency
transactions (495)
Accumulated undistributed net investment income 13,523
- ----------------------------------------------------------------------------------------------------------------------------
Net assets $2,954,514
- ----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 290,900
- ----------------------------------------------------------------------------------------------------------------------------
Initial Class shares
Net asset value per share
(net assets of $2,901,771 / 285,704 shares of beneficial interest outstanding) $10.16
- ----------------------------------------------------------------------------------------------------------------------------
Service Class shares
Net asset value per share
(net assets of $52,743 / 5,196 shares of beneficial interest outstanding) $10.15
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your series received in investment income
and paid in expenses. It also describes any gains and/or losses generated by
series operations.
PERIOD ENDED 6/30/05*
NET INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------------
Income
Dividends $18,588
Interest 2,012
Foreign taxes withheld (2,234)
- ----------------------------------------------------------------------------------------------------------------------------
Total investment income $18,366
- ----------------------------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,944
Distribution fees 22
Shareholder servicing costs 154
Administrative services fee 63
Custodian fee 714
Printing 263
Auditing fees 7,333
Legal fees 390
Miscellaneous 919
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses $13,802
- ----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (6)
Reduction of expenses by investment adviser (8,953)
- ----------------------------------------------------------------------------------------------------------------------------
Net expenses $4,843
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income $13,523
- ----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $78 country tax) $(4,420)
Foreign currency transactions 3,925
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions $(495)
- ----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $23,570
Translation of assets and liabilities in foreign currencies (46)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation $23,524
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency $23,029
- ----------------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $36,552
- ----------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations, April 29, 2005, through June 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
PERIOD ENDED
6/30/05
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $13,523
Net realized gain (loss) on investments and foreign currency transactions (495)
Net unrealized gain (loss) on investments and foreign currency translation 23,524
- ----------------------------------------------------------------------------------------------------------------------
Change in net assets from operations $36,552
- ----------------------------------------------------------------------------------------------------------------------
Change in net assets from series share transactions $2,917,962
- ----------------------------------------------------------------------------------------------------------------------
Total change in net assets $2,954,514
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
At beginning of period $--
At end of period (including accumulated undistributed net investment income
of $13,523) $2,954,514
- ----------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations, April 29, 2005, through June 30, 2005.
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the series'
financial performance for the period of the series' operation. Certain
information reflects financial results for a single series share. The total
returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the series (assuming reinvestment of all
distributions) held for the entire period.
INITIAL CLASS
PERIOD ENDED
6/30/05*
(UNAUDITED)
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ------------------------------------------------------------------------------
Net investment income $0.06
Net realized and unrealized gain on investments and foreign currency 0.10
- ------------------------------------------------------------------------------
Total from investment operations $0.16
- ------------------------------------------------------------------------------
Net asset value, end of period $10.16
- ------------------------------------------------------------------------------
Total return (%)***(+)& 1.60++
- ------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------
Expenses before expense reductions## 3.15+
Expenses after expense reductions## 1.10+
Net investment income 3.09+
Portfolio turnover 10
Net assets at end of period (000 Omitted) $2,902
- ------------------------------------------------------------------------------
Financial Highlights - continued
SERVICE CLASS
PERIOD ENDED
6/30/05*
(UNAUDITED)
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- ------------------------------------------------------------------------------
Net investment income $0.05
Net realized and unrealized gain on investments and foreign currency 0.10
- ------------------------------------------------------------------------------
Total from investment operations $0.15
- ------------------------------------------------------------------------------
Net asset value, end of period $10.15
- ------------------------------------------------------------------------------
Total return (%)***(+)& 1.50++
- ------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------
Expenses before expense reductions## 3.40+
Expenses after expense reductions## 1.35+
Net investment income 3.07+
Portfolio turnover 10
Net assets at end of period (000 Omitted) $53
- ------------------------------------------------------------------------------
* For the period from the commencement of the series' investment operations,
April 29, 2005, through June 30, 2005.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
*** Certain expenses have been reduced without which performance would have been
lower.
(+) 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.
& From time to time the series may receive proceeds from litigation
settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Research International Series (the series) is a diversified series of MFS
Variable Insurance Trust (the trust). The trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of each series of the trust are separate accounts of insurance
companies, which offer variable annuity and/or life insurance products. As of
June 30, 2005, there were 7 shareholders.
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
series can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the series' portfolio for which
market quotations are available are valued at the last sale or official
closing price as reported by an independent pricing service on the primary
market or exchange on which they are primarily traded, or at the last quoted
bid price for securities in which there were no sales during the day. Equity
securities traded over the counter are valued at the last sales price traded
each day as reported by an independent pricing service, or to the extent there
are no sales reported, such securities are valued on the basis of quotations
obtained from brokers and dealers. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the series' portfolio are valued at
amortized cost, which approximates market value as determined by the Board of
Trustees. Investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates. When pricing service information or
market quotations are not readily available, securities are priced at fair
value as determined under the direction of the Board of Trustees. For example,
significant events (such as movement in the U.S. securities market, or other
regional and local developments) may occur between the time that foreign
markets close (where the security is principally traded) and the time that the
series calculates its net asset value (generally, the close of the NYSE) that
may impact the value of securities traded in these foreign markets. In these
cases, the series may utilize information from an external vendor or other
sources to adjust closing market quotations of foreign equity securities to
reflect what it believes to be the fair value of the securities as of the
series' valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis.
REPURCHASE AGREEMENTS - The series may enter into repurchase agreements with
institutions that the series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The series requires
that the securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the series to obtain those securities
in the event of a default under the repurchase agreement. The series monitors,
on a daily basis, the value of the collateral to ensure that its value,
including accrued interest, is greater than amounts owed to the series under
each such repurchase agreement. The series, along with other affiliated entities
of Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
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. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The series may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss in
the Statement of Operations, or in unrealized gain/loss if the security is still
held by the series.
FEES PAID INDIRECTLY - The series' custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the series. During the period ended June 30, 2005, the series' custodian fees
were reduced by $6 under this arrangement. The series has entered into a
commission recapture agreement, under which certain brokers will credit the
series a portion of the commissions generated, to offset certain expenses of
the series. For the period ended June 30, 2005, the series did not recapture
commissions. The custody fee reduction is shown as a reduction of total
expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The series
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Realized gain is reported net of any foreign capital gains tax in the
Statement of Operations.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The series offers multiple
classes of shares, which differ in their respective distribution fees. All
shareholders bear the common expenses of the series based on daily net assets
of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.90%
of the series' average daily net assets.
The investment adviser has contractually agreed to pay a portion of the series'
operating expenses, exclusive of management, distribution, and certain other
fees and expenses, such that operating expenses do not exceed 0.20% annually of
the series' average daily net assets. This is reflected as a reduction of total
expenses in the Statement of Operations. This contractual fee arrangement will
continue until April 30, 2006, unless the series' Board of Trustees consents to
an earlier revision or termination of this agreement.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, is the distributor of
shares of the series. 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 series' distribution plan provides that the series will pay MFD distribution
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 series to fund variable annuity and
variable life insurance contracts, sponsors of qualified retirement and pension
plans that invest in the series, and affiliates of these participating insurance
companies and plan sponsors) in connection with the sale and distribution of the
Service Class shares.
SHAREHOLDER SERVICING AGENT - The series pays a portion of shareholder servicing
costs to MFSC, a wholly-owned subsidiary of MFS. MFSC receives a fee from the
series, for its services as shareholder servicing agent. For the period ended
June 30, 2005, the fee was $151, which equated to 0.035% annually of the series'
average daily net assets. MFSC also receives payment from the series for
out-of-pocket expenses paid by MFSC on behalf of the series. For the period
ended June 30, 2005, there were no out-of-pocket expenses.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is allocated a portion of these administrative costs based on its size and
relative average net assets. The administrative services fee incurred for the
period ended June 30, 2005 was equivalent to an annual effective rate of
0.01441% of the series' average daily net assets.
TRUSTEES' COMPENSATION - The series pays compensation to Independent Trustees in
the form of a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons. The series does not pay compensation directly to
Trustees who are officers of the investment adviser, or to officers of the
series, all of whom receive remuneration for their services to the series from
MFS. Certain officers and Trustees of the series are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
OTHER - This series and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. MFS has agreed to reimburse the fund
for a portion of the payments made by the funds to Tarantino LLC in the amount
of $2, which is shown as a reduction of total expenses in the Statement of
Operations. Additionally, MFS has agreed to bear all expenses associated with
office space, other administrative support, and supplies provided to the ICCO.
The funds can terminate the Agreement with Tarantino LLC at any time under the
terms of the Agreement.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $3,059,154
and $223,215, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $2,989,597
---------------------------------------------------------
Gross unrealized appreciation $68,997
Gross unrealized depreciation (45,427)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $23,570
(5) SHARES OF BENEFICIAL INTEREST
The series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
series shares were as follows:
Period ended 6/30/05*
SHARES AMOUNT
INITIAL CLASS SHARES
Shares sold 285,910 $2,868,074
Shares reacquired (206) (2,092)
- ---------------------------------------------------------------------------
Net change 285,704 $2,865,982
SERVICE CLASS SHARES
Shares sold 5,196 $51,980
* For the period from the commencement of the series' investment operations,
April 29, 2005, through June 30, 2005.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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, initially approve the series' investment advisory agreement with
MFS and annually approve the continuation of the series' investment advisory
agreement with MFS. The Trustees consider matters bearing on the series and
its advisory arrangements at their meetings throughout the year. In April
2005, the Board met to consider the initial approval of the series' investment
advisory agreement ("initial review meeting"). In addition, the independent
Trustees met several times over the course of three months beginning in May
and ending in July, 2005 (the "renewal meetings," together with the initial
review meeting, the "contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the series and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the series' 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 the MFS Funds' Independent
Chief Compliance Officer, a full-time senior officer appointed by and
reporting to the independent Trustees.
In connection with their deliberations regarding the initial approval and 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
series 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 series.
The series commenced operations in May, 2005 and has a limited operating
history and performance record. In considering investment performance, the
Trustees took into account the investment performance of other MFS Funds with
comparable investment objectives and policies as the series, including the
performance of MFS Research International Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of funds with
substantially similar investment classifications/objectives to the series for
various time periods ended December 31, 2004, (ii) information provided by
Lipper Inc. on the series' advisory fees and other expenses and the advisory
fees and other expenses of comparable funds identified by Lipper (the "Lipper
expense group"), as well as the advisory fees and other expenses of peer funds
identified by objective criteria suggested by MFS, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including MFS Institutional International Research Equity Fund and other
comparable mutual fund clients of MFS and, in connection with the renewal
meetings, institutional separate account and other clients, (iv) information
as to whether and to what extent applicable expense waivers, reimbursements or
fee "breakpoints" are observed for the series, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the series and
the MFS Funds as a whole, (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 series and the other MFS Funds. The comparative fee
and expense information prepared and provided by Lipper Inc. 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 initial approval and 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.
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. 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' efforts relating to investment performance.
In assessing the reasonableness of the series' advisory fee, the Trustees
considered, among other information, the series' advisory fee and the total
expense ratio of the series' Initial Class shares as a percentage of average
net assets and the advisory fee and total expense ratios of peer groups of
funds based on information provided by Lipper Inc. and MFS. The Trustees
considered that MFS currently observes a voluntary expense limitation for the
series, which may not be changed without the Trustees' approval. The Trustees
also considered that, according to the Lipper data, the series' effective
advisory fee rate (taking into account the voluntary expense limitation) and
total expense ratio were each lower than the median of such fees and expenses
of funds in the Lipper expense group.
At the renewal meetings, the Trustees also considered the advisory fees
charged by MFS to institutional accounts. In comparing these fees, the
Trustees considered information provided by MFS as to the generally broader
scope of services provided by MFS to the series in comparison to institutional
accounts, 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
series, and the impact on MFS and expenses associated with the more extensive
regulatory regime to which the series is subject in comparison to
institutional accounts.
The Trustees also considered whether the series is likely to benefit from any
economies of scale in the management of the series in the event of growth in
assets of the series. They noted that the series' advisory fee rate schedule
is not currently subject to any breakpoints. Taking into account the expense
limitation described above, the Trustees determined not to recommend any
advisory fee breakpoints for the series at this time.
The Trustees did not consider MFS' costs and profits with respect to the
series because the series has no operating history. The Trustees considered
information prepared by MFS relating to MFS' costs and profits with respect to
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 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 series
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the series.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the
series. The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry 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 parent, Sun Life Financial
Inc. The Trustees also considered the advantages and possible disadvantages to
the series of having an adviser which 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
series by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including the 12b-1 fees the series' Service
Class shares 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 series' behalf, including
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 Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the series'
portfolio brokerage commissions to pay for research and other similar services
(including MFS' policy not to use "soft dollars" generated by series portfolio
transactions to pay for third-party research), and various other factors.
Additionally, the Trustees considered so-called "fall-out benefits" to MFS
such as reputational value derived from serving as investment manager to the
series.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the series' investment
advisory agreement with MFS should be approved commencing in April 2005 and
continued for an additional one-year period, commencing August 1, 2005.
The discussion regarding the Board's initial approval and recent renewal of
the series' Investment Advisory Agreement with MFS can also be found by
clicking on "Variable Insurance Trust" in the "Products and Performance"
section of the MFS website (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS series' proxy voting policies and procedures
is available without charge, upon request, by calling 1-800-225-2606, by
visiting the Proxy Voting section of mfs.com or by visiting the SEC's website
at http://www.sec.gov.
Information regarding how the series voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's website at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The series will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The series' Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The series' Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
CONTACT INFORMATION
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Share prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VRI-SEM 8/05 59
ITEM 2. CODE OF ETHICS.
The Registrant has amended its Code of Ethics to reflect that the Registrant's
Principal Financial Officer has changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 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 7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Act) as conducted within
90 days of the filing date of this 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 second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(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: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(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.
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
By (Signature and Title)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
Date: August 18, 2005
---------------
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)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: August 18, 2005
---------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: August 18, 2005
---------------
* Print name and title of each signing officer under his or her signature.