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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 811-8879
MFS VARIABLE INSURANCE TRUST III
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2017
Table of Contents
ITEM 1. | REPORTS TO STOCKHOLDERS. |
Table of Contents
SEMIANNUAL REPORT
June 30, 2017
MFS® BLENDED RESEARCH® SMALL CAP EQUITY PORTFOLIO
MFS® Variable Insurance Trust III
VSC-SEM
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MFS® BLENDED RESEARCH® SMALL CAP EQUITY PORTFOLIO
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
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MFS Blended Research Small Cap Equity Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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MFS Blended Research Small Cap Equity Portfolio
Portfolio structure
Top ten holdings | ||||
OraSure Technologies, Inc. | 1.9% | |||
Exact Sciences Corp. | 1.6% | |||
LogMeIn, Inc. | 1.6% | |||
East West Bancorp, Inc. | 1.5% | |||
Tech Data Corp. | 1.5% | |||
RE/MAX Holdings, Inc., “A” | 1.5% | |||
Wintrust Financial Corp. | 1.5% | |||
Gramercy Property Trust, Inc., REIT | 1.4% | |||
A. Schulman, Inc. | 1.4% | |||
MiMedx Group, Inc. | 1.4% |
Equity sectors | ||||
Financial Services | 26.7% | |||
Technology | 17.1% | |||
Health Care | 12.6% | |||
Industrial Goods & Services | 9.0% | |||
Special Products & Services | 6.1% | |||
Basic Materials | 5.5% | |||
Energy | 5.2% | |||
Leisure | 4.9% | |||
Utilities & Communications | 3.6% | |||
Retailing | 2.6% | |||
Transportation | 2.3% | |||
Autos & Housing | 2.1% | |||
Consumer Staples | 1.7% |
(o) | Less than 0.1%. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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MFS Blended Research Small Cap Equity Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.53% | $1,000.00 | $1,048.38 | $2.69 | |||||||||||||
Hypothetical (h) | 0.53% | $1,000.00 | $1,022.17 | $2.66 | ||||||||||||||
Service Class | Actual | 0.78% | $1,000.00 | $1,047.21 | $3.96 | |||||||||||||
Hypothetical (h) | 0.78% | $1,000.00 | $1,020.93 | $3.91 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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MFS Blended Research Small Cap Equity Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 99.4% | ||||||||
Airlines – 1.7% | ||||||||
Copa Holdings S.A., “A” | 10,387 | $ | 1,215,277 | |||||
Hawaiian Holdings, Inc. (a) | 5,944 | 279,071 | ||||||
SkyWest, Inc. | 12,328 | 432,713 | ||||||
|
| |||||||
$ | 1,927,061 | |||||||
|
| |||||||
Biotechnology – 4.8% | ||||||||
Acorda Therapeutics, Inc. (a) | 28,556 | $ | 562,553 | |||||
AMAG Pharmaceuticals, Inc. (a) | 47,341 | 871,074 | ||||||
Bruker BioSciences Corp. | 15,002 | 432,658 | ||||||
Exact Sciences Corp. (a) | 49,437 | 1,748,587 | ||||||
MiMedx Group, Inc. (a)(l) | 102,972 | 1,541,491 | ||||||
Natera, Inc. (a) | 11,167 | 121,274 | ||||||
|
| |||||||
$ | 5,277,637 | |||||||
|
| |||||||
Brokerage & Asset Managers – 0.3% | ||||||||
Legg Mason, Inc. | 1,486 | $ | 56,706 | |||||
Moelis & Co., “A” | 5,437 | 211,227 | ||||||
OM Asset Management PLC | 3,668 | 54,506 | ||||||
|
| |||||||
$ | 322,439 | |||||||
|
| |||||||
Business Services – 5.4% | ||||||||
Conduent, Inc. (a) | 33,456 | $ | 533,289 | |||||
Forrester Research, Inc. | 31,040 | 1,215,216 | ||||||
Grand Canyon Education, Inc. (a) | 16,365 | 1,283,180 | ||||||
RE/MAX Holdings, Inc., “A” | 29,179 | 1,635,483 | ||||||
Realogy Holdings Corp. | 8,780 | 284,911 | ||||||
Travelport Worldwide Ltd. | 70,127 | 964,948 | ||||||
|
| |||||||
$ | 5,917,027 | |||||||
|
| |||||||
Cable TV – 0.8% | ||||||||
Cable One, Inc. | 1,243 | $ | 883,649 | |||||
|
| |||||||
Computer Software – 4.6% | ||||||||
2U, Inc. (a) | 16,120 | $ | 756,350 | |||||
Aspen Technology, Inc. (a) | 17,044 | 941,851 | ||||||
Cornerstone OnDemand, Inc. (a) | 26,223 | 937,472 | ||||||
Manhattan Associates, Inc. (a) | 20,580 | 989,075 | ||||||
Paylocity Holding Corp. (a) | 31,036 | 1,402,206 | ||||||
|
| |||||||
$ | 5,026,954 | |||||||
|
| |||||||
Computer Software – Systems – 6.4% | ||||||||
Carbonite, Inc. (a) | 34,061 | $ | 742,530 | |||||
EPAM Systems, Inc. (a) | 12,253 | 1,030,355 | ||||||
NCR Corp. (a) | 33,923 | 1,385,415 | ||||||
Presidio, Inc. (a)(l) | 38,068 | 544,753 | ||||||
Rapid7, Inc. (a) | 62,316 | 1,048,778 | ||||||
Tech Data Corp. (a) | 16,683 | 1,684,983 | ||||||
Verint Systems, Inc. (a) | 6,955 | 283,069 | ||||||
Wageworks, Inc. (a) | 5,020 | 337,344 | ||||||
|
| |||||||
$ | 7,057,227 | |||||||
|
| |||||||
Construction – 2.1% | ||||||||
Armstrong World Industries, Inc. (a) | 5,905 | $ | 271,630 | |||||
GMS, Inc. (a) | 6,025 | 169,303 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Construction – continued | ||||||||
Pool Corp. | 5,600 | $ | 658,392 | |||||
Trex Co., Inc. (a) | 18,433 | 1,247,177 | ||||||
|
| |||||||
$ | 2,346,502 | |||||||
|
| |||||||
Consumer Services – 0.7% | ||||||||
Carriage Services, Inc. | 2,378 | $ | 64,111 | |||||
ServiceMaster Global Holdings, Inc. (a) | 18,891 | 740,338 | ||||||
|
| |||||||
$ | 804,449 | |||||||
|
| |||||||
Electrical Equipment – 2.4% | ||||||||
TriMas Corp. (a) | 62,837 | $ | 1,310,151 | |||||
WESCO International, Inc. (a) | 23,541 | 1,348,899 | ||||||
|
| |||||||
$ | 2,659,050 | |||||||
|
| |||||||
Electronics – 3.6% | ||||||||
Amkor Technology, Inc. (a) | 50,346 | $ | 491,880 | |||||
Benchmark Electronics, Inc. (a) | 14,902 | 481,335 | ||||||
Diodes, Inc. (a) | 2,359 | 56,687 | ||||||
Integrated Device Technology, Inc. (a) | 10,274 | 264,966 | ||||||
Jabil Circuit, Inc. | 29,150 | 850,889 | ||||||
OSI Systems, Inc. (a) | 3,478 | 261,372 | ||||||
Sanmina Corp. (a) | 28,340 | 1,079,754 | ||||||
TTM Technologies, Inc. (a) | 24,878 | 431,882 | ||||||
|
| |||||||
$ | 3,918,765 | |||||||
|
| |||||||
Energy – Independent – 1.5% | ||||||||
Delek U.S. Holdings, Inc. | 27,639 | $ | 730,775 | |||||
Energen Corp. (a) | 9,330 | 460,622 | ||||||
PBF Energy, Inc., “A” | 14,480 | 322,325 | ||||||
Westmoreland Coal Co. (a) | 23,040 | 112,205 | ||||||
|
| |||||||
$ | 1,625,927 | |||||||
|
| |||||||
Engineering – Construction – 1.7% | ||||||||
Chicago Bridge & Iron Co. N.V. | 16,207 | $ | 319,764 | |||||
KBR, Inc. | 92,790 | 1,412,264 | ||||||
Tutor Perini Corp. (a) | 6,349 | 182,534 | ||||||
|
| |||||||
$ | 1,914,562 | |||||||
|
| |||||||
Entertainment – 0.6% | ||||||||
Ascent Capital Group, Inc., “A” (a) | 40,335 | $ | 619,546 | |||||
|
| |||||||
Food & Beverages – 1.7% | ||||||||
Dean Foods Co. | 44,401 | $ | 754,817 | |||||
Snyders-Lance, Inc. | 17,579 | 608,585 | ||||||
SpartanNash Co. | 18,169 | 471,667 | ||||||
|
| |||||||
$ | 1,835,069 | |||||||
|
| |||||||
Gaming & Lodging – 0.5% | ||||||||
Caesars Entertainment Corp. (a)(l) | 45,897 | $ | 550,764 | |||||
|
| |||||||
Health Maintenance Organizations – 0.8% | ||||||||
Molina Healthcare, Inc. (a) | 12,486 | $ | 863,781 | |||||
|
| |||||||
Insurance – 4.2% | ||||||||
American Equity Investment Life Holding Co. | 39,884 | $ | 1,048,152 | |||||
Hanover Insurance Group, Inc. | 1,189 | 105,381 |
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MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Insurance – continued | ||||||||
HCI Group, Inc. | 14,592 | $ | 685,532 | |||||
Heritage Insurance Holdings, Inc. | 37,037 | 482,222 | ||||||
Maiden Holdings Ltd. | 4,838 | 53,702 | ||||||
Safety Insurance Group, Inc. | 8,573 | 585,536 | ||||||
Third Point Reinsurance Ltd. (a) | 56,032 | 778,845 | ||||||
Universal Insurance Holdings, Inc. | 23,407 | 589,856 | ||||||
Validus Holdings Ltd. | 6,492 | 337,389 | ||||||
|
| |||||||
$ | 4,666,615 | |||||||
|
| |||||||
Internet – 2.6% | ||||||||
Blucora, Inc. (a) | 37,871 | $ | 802,865 | |||||
LogMeIn, Inc. | 16,554 | 1,729,893 | ||||||
Web.Com Group, Inc. (a) | 11,024 | 278,907 | ||||||
|
| |||||||
$ | 2,811,665 | |||||||
|
| |||||||
Machinery & Tools – 4.8% | ||||||||
Columbus McKinnon Corp. | 3,087 | $ | 78,472 | |||||
Greenbrier Cos., Inc. (l) | 14,237 | 658,461 | ||||||
Herman Miller, Inc. | 3,971 | 120,718 | ||||||
IPG Photonics Corp. (a) | 9,378 | 1,360,748 | ||||||
ITT, Inc. | 7,045 | 283,068 | ||||||
Park-Ohio Holdings Corp. | 14,543 | 554,088 | ||||||
Regal Beloit Corp. | 5,740 | 468,097 | ||||||
SPX Corp. (a) | 11,922 | 299,958 | ||||||
SPX FLOW, Inc. (a) | 35,379 | 1,304,778 | ||||||
Steelcase, Inc., “A” | 14,033 | 196,462 | ||||||
|
| |||||||
$ | 5,324,850 | |||||||
|
| |||||||
Medical Equipment – 5.8% | ||||||||
AtriCure, Inc. (a) | 12,639 | $ | 306,496 | |||||
Biotelemetry, Inc. (a) | 28,924 | 967,508 | ||||||
CONMED Corp. | 28,584 | 1,456,069 | ||||||
Integra LifeSciences Holdings Corp. (a) | 6,384 | 347,992 | ||||||
NxStage Medical, Inc. (a) | 47,510 | 1,191,076 | ||||||
OraSure Technologies, Inc. (a) | 124,118 | 2,142,277 | ||||||
|
| |||||||
$ | 6,411,418 | |||||||
|
| |||||||
Metals & Mining – 0.2% | ||||||||
Ryerson Holding Corp. (a) | 25,116 | $ | 248,648 | |||||
|
| |||||||
Natural Gas – Distribution – 0.1% | ||||||||
ONE Gas, Inc. | 953 | $ | 66,529 | |||||
Southwest Gas Holdings, Inc. | 939 | 68,603 | ||||||
|
| |||||||
$ | 135,132 | |||||||
|
| |||||||
Oil Services – 3.7% | ||||||||
Exterran Holdings, Inc. (a) | 21,831 | $ | 582,888 | |||||
Forum Energy Technologies, Inc. (a) | 2,270 | 35,412 | ||||||
Keane Group, Inc. (a) | 39,287 | 628,592 | ||||||
McDermott International, Inc. (a) | 91,850 | 658,565 | ||||||
NOW, Inc. (a) | 83,053 | 1,335,492 | ||||||
Superior Energy Services, Inc. (a) | 3,298 | 34,398 | ||||||
U.S. Silica Holdings, Inc. | 22,501 | 798,560 | ||||||
|
| |||||||
$ | 4,073,907 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 13.0% | ||||||||
BancorpSouth, Inc. | 7,375 | $ | 224,938 | |||||
Bank of N.T. Butterfield & Son Ltd. | 7,247 | 247,123 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Other Banks & Diversified Financials – continued | ||||||||
Berkshire Hills Bancorp, Inc. | 9,395 | $ | 330,234 | |||||
CAI International, Inc. (a) | 25,849 | 610,036 | ||||||
Cathay General Bancorp, Inc. | 25,911 | 983,322 | ||||||
East West Bancorp, Inc. | 29,045 | 1,701,456 | ||||||
Enova International, Inc. (a) | 44,931 | 667,225 | ||||||
First Interstate BancSystem, Inc. | 34,007 | 1,265,060 | ||||||
Glacier Bancorp, Inc. | 4,019 | 147,136 | ||||||
Lakeland Financial Corp. | 1,926 | 88,365 | ||||||
Legacytextas Financial Group, Inc. | 26,992 | 1,029,205 | ||||||
Meta Financial Group, Inc. | 6,436 | 572,804 | ||||||
Nelnet, Inc., “A” | 6,063 | 285,022 | ||||||
OFG Bancorp | 21,837 | 218,370 | ||||||
PacWest Bancorp | 11,978 | 559,373 | ||||||
Popular, Inc. | 15,752 | 657,016 | ||||||
Preferred Bank | 11,332 | 605,922 | ||||||
Regional Management Corp. (a) | 29,828 | 704,836 | ||||||
Triton International Ltd. of Bermuda | 21,427 | 716,519 | ||||||
Western Alliance Bancorp. (a) | 16,063 | 790,300 | ||||||
Wintrust Financial Corp. | 20,927 | 1,599,660 | ||||||
World Acceptance Corp. (a) | 4,165 | 312,000 | ||||||
|
| |||||||
$ | 14,315,922 | |||||||
|
| |||||||
Pharmaceuticals – 1.2% | ||||||||
Catalent, Inc. (a) | 7,589 | $ | 266,374 | |||||
Endo International PLC (a) | 26,541 | 296,463 | ||||||
Mallinckrodt PLC (a) | 2,726 | 122,152 | ||||||
Sucampo Pharmaceuticals, Inc. (a) | 5,920 | 62,160 | ||||||
TherapeuticsMD, Inc. (a)(l) | 110,294 | 581,249 | ||||||
|
| |||||||
$ | 1,328,398 | |||||||
|
| |||||||
Printing & Publishing – 1.1% | ||||||||
LSC Communications, Inc. | 3,664 | $ | 78,410 | |||||
Quad/Graphics, Inc. | 26,180 | 600,046 | ||||||
Time, Inc. | 39,903 | 572,608 | ||||||
|
| |||||||
$ | 1,251,064 | |||||||
|
| |||||||
Real Estate – 9.2% | ||||||||
Ashford Hospitality Trust, REIT | 87,095 | $ | 529,538 | |||||
CBL & Associates Properties, Inc., REIT | 28,762 | 242,464 | ||||||
CoreCivic, Inc. | 18,295 | 504,576 | ||||||
Corporate Office Properties Trust, REIT | 6,601 | 231,233 | ||||||
Equity Commonwealth, REIT (a) | 7,544 | 238,390 | ||||||
GEO Group, Inc., REIT | 15,400 | 455,378 | ||||||
Gramercy Property Trust, REIT | 52,857 | 1,570,381 | ||||||
Hospitality Properties Trust, REIT | 16,554 | 482,549 | ||||||
Life Storage, Inc., REIT | 1,828 | 135,455 | ||||||
Medical Properties Trust, Inc., REIT | 95,597 | 1,230,333 | ||||||
Mid-America Apartment Communities, Inc., REIT | 11,000 | 1,159,180 | ||||||
Ryman Hospitality Properties, Inc., REIT | 1,228 | 78,604 | ||||||
STAG Industrial, Inc., REIT | 11,277 | 311,245 | ||||||
Store Capital Corp., REIT | 45,008 | 1,010,430 | ||||||
Washington Prime Group, Inc., REIT | 182,191 | 1,524,939 | ||||||
Xenia Hotels & Resorts Inc., REIT | 19,992 | 387,245 | ||||||
|
| |||||||
$ | 10,091,940 | |||||||
|
|
5
Table of Contents
MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||||||||||
COMMON STOCKS – continued | ||||||||||||||||
Restaurants – 1.9% | ||||||||||||||||
BJ’s Restaurants, Inc. (a) | 5,495 | $ | 204,689 | |||||||||||||
Brinker International, Inc. | 25,888 | 986,333 | ||||||||||||||
Carrols Restaurant Group, Inc. (a) | 36,940 | 452,515 | ||||||||||||||
Wingstop, Inc. | 16,229 | 501,476 | ||||||||||||||
|
| |||||||||||||||
$ | 2,145,013 | |||||||||||||||
|
| |||||||||||||||
Specialty Chemicals – 5.3% | ||||||||||||||||
A. Schulman, Inc. | 48,337 | $ | 1,546,784 | |||||||||||||
Andersons, Inc. | 18,163 | 620,266 | ||||||||||||||
Chemours Co. | 6,727 | 255,088 | ||||||||||||||
Pacific Ethanol, Inc. (a) | 24,537 | 153,356 | ||||||||||||||
Renewable Energy Group, Inc. (a) | 48,578 | 629,085 | ||||||||||||||
Trinseo S.A. | 15,561 | 1,069,041 | ||||||||||||||
Univar, Inc. (a) | 52,535 | 1,534,022 | ||||||||||||||
|
| |||||||||||||||
$ | 5,807,642 | |||||||||||||||
|
| |||||||||||||||
Specialty Stores – 2.6% | ||||||||||||||||
Citi Trends, Inc. | 66,210 | $ | 1,404,976 | |||||||||||||
Express, Inc. (a) | 44,539 | 300,638 | ||||||||||||||
Sally Beauty Holdings, Inc. (a) | 7,716 | 156,249 | ||||||||||||||
Urban Outfitters, Inc. (a) | 38,425 | 712,400 | ||||||||||||||
Zumiez, Inc. (a) | 23,272 | 287,409 | ||||||||||||||
|
| |||||||||||||||
$ | 2,861,672 | |||||||||||||||
|
| |||||||||||||||
Trucking – 0.6% | ||||||||||||||||
Hub Group, Inc., “A” (a) | 9,749 | $ | 373,874 | |||||||||||||
Marten Transport Ltd. | 10,903 | 298,742 | ||||||||||||||
|
| |||||||||||||||
$ | 672,616 | |||||||||||||||
|
| |||||||||||||||
Utilities – Electric Power – 3.5% | ||||||||||||||||
Atlantica Yield PLC | 42,148 | $ | 900,281 | |||||||||||||
NRG Energy, Inc. | 70,346 | 1,211,358 | ||||||||||||||
NRG Yield, Inc., “A” | 22,897 | 390,623 | ||||||||||||||
PNM Resources, Inc. | 15,254 | 583,466 | ||||||||||||||
Spark Energy, Inc., “A” | 40,678 | 764,746 | ||||||||||||||
|
| |||||||||||||||
$ | 3,850,474 | |||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Identified Cost, $92,286,237) | $ | 109,547,385 | ||||||||||||||
|
|
Issuer | Strike Price | First Exercise | Shares/Par | Value ($) | ||||||||||||
WARRANTS – 0.0% | ||||||||||||||||
OTHER BANKS & DIVERSIFIED FINANCIALS – 0.0% | ||||||||||||||||
Emergent Capital, Inc. (1 share for 1 warrant) (Identified Cost, $0) (a) | $ | 10.75 | 11/06/14 | 318 | $ | 3 | ||||||||||
|
| |||||||||||||||
MONEY MARKET FUNDS – 0.7% | ||||||||||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $749,071) | 749,146 | $ | 749,146 | |||||||||||||
|
| |||||||||||||||
COLLATERAL FOR SECURITIES LOANED – 1.8% | ||||||||||||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 1% (j) (Identified Cost, $1,962,395) | 1,962,395 | $ | 1,962,395 | |||||||||||||
|
| |||||||||||||||
Total Investments (Identified Cost, $94,997,703) | $ | 112,258,929 | ||||||||||||||
|
| |||||||||||||||
OTHER ASSETS, LESS LIABILITIES – (1.9)% | (2,094,333 | ) | ||||||||||||||
|
| |||||||||||||||
NET ASSETS – 100.0% | $ | 110,164,596 | ||||||||||||||
|
|
(a) | Non-income producing security. |
(j) | The rate quoted is the annualized seven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
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MFS Blended Research Small Cap Equity Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $94,248,632) | $111,509,783 | |||
Underlying affiliated funds, at value (identified cost, $749,071) | 749,146 | |||
Total investments, at value, including $2,382,854 of securities on loan (identified cost, $94,997,703) | $112,258,929 | |||
Cash | 1,815 | |||
Receivables for | ||||
Fund shares sold | 424 | |||
Interest and dividends | 142,170 | |||
Other assets | 574 | |||
Total assets | $112,403,912 | |||
Liabilities | ||||
Payable for fund shares reacquired | $232,630 | |||
Collateral for securities loaned, at value (c) | 1,962,395 | |||
Payable to affiliates | ||||
Investment adviser | 2,529 | |||
Shareholder servicing costs | 42 | |||
Distribution and/or service fees | 1,024 | |||
Payable for independent Trustees’ compensation | 179 | |||
Accrued expenses and other liabilities | 40,517 | |||
Total liabilities | $2,239,316 | |||
Net assets | $110,164,596 | |||
Net assets consist of | ||||
Paid-in capital | $76,388,876 | |||
Unrealized appreciation (depreciation) on investments | 17,261,226 | |||
Accumulated net realized gain (loss) on investments | 15,306,752 | |||
Undistributed net investment income | 1,207,742 | |||
Net assets | $110,164,596 | |||
Shares of beneficial interest outstanding | 8,076,951 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $35,850,133 | 2,584,422 | $13.87 | |||||||||
Service Class | 74,314,463 | 5,492,529 | 13.53 |
(c) | Non-cash collateral is not included. |
See Notes to Financial Statements
7
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MFS Blended Research Small Cap Equity Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment income | ||||
Income | ||||
Dividends | $751,022 | |||
Income on securities loaned | 59,395 | |||
Dividends from underlying affiliated funds | 3,853 | |||
Foreign taxes withheld | (1,368 | ) | ||
Total investment income | $812,902 | |||
Expenses | ||||
Management fee | $209,708 | |||
Distribution and/or service fees | 92,746 | |||
Shareholder servicing costs | 4,483 | |||
Administrative services fee | 13,151 | |||
Independent Trustees’ compensation | 2,229 | |||
Custodian fee | 2,709 | |||
Shareholder communications | 16,056 | |||
Audit and tax fees | 26,094 | |||
Legal fees | 604 | |||
Miscellaneous | 5,281 | |||
Total expenses | $373,061 | |||
Reduction of expenses by investment adviser | (4,026 | ) | ||
Net expenses | $369,035 | |||
Net investment income | $443,867 | |||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) (identified cost basis) | ||||
Investments: | ||||
Non-affiliated issuers | $4,284,308 | |||
Underlying affiliated funds | 598 | |||
Net realized gain (loss) on investments | $4,284,906 | |||
Change in unrealized appreciation (depreciation) on investments | $169,571 | |||
Net realized and unrealized gain (loss) on investments | $4,454,477 | |||
Change in net assets from operations | $4,898,344 |
See Notes to Financial Statements
8
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MFS Blended Research Small Cap Equity Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| Six months ended 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income | $443,867 | $763,886 | ||||||
Net realized gain (loss) on investments | 4,284,906 | 11,388,941 | ||||||
Net unrealized gain (loss) on investments | 169,571 | 7,487,812 | ||||||
Change in net assets from operations | $4,898,344 | $19,640,639 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(1,047,437 | ) | |||||
From net realized gain on investments | — | (10,876,539 | ) | |||||
Total distributions declared to shareholders | $— | $(11,923,976 | ) | |||||
Change in net assets from fund share transactions | $2,098,196 | $(15,137,767 | ) | |||||
Total change in net assets | $6,996,540 | $(7,421,104 | ) | |||||
Net assets | ||||||||
At beginning of period | 103,168,056 | 110,589,160 | ||||||
At end of period (including undistributed net investment income of $1,207,742 and | $110,164,596 | $103,168,056 |
See Notes to Financial Statements
9
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MFS Blended Research Small Cap Equity Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $13.23 | $12.29 | $16.04 | $18.24 | $13.57 | $12.42 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.07 | $0.11 | (c) | $0.15 | $0.10 | $0.11 | $0.16 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.57 | 2.35 | (0.94 | ) | 1.16 | 5.91 | 1.68 | |||||||||||||||||
Total from investment operations | $0.64 | $2.46 | $(0.79 | ) | $1.26 | $6.02 | $1.84 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.16 | ) | $(0.10 | ) | $(0.18 | ) | $(0.28 | ) | $(0.08 | ) | |||||||||||||
From net realized gain on investments | — | (1.36 | ) | (2.86 | ) | (3.28 | ) | (1.07 | ) | (0.61 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.52 | ) | $(2.96 | ) | $(3.46 | ) | $(1.35 | ) | $(0.69 | ) | |||||||||||||
Net asset value, end of period (x) | $13.87 | $13.23 | $12.29 | $16.04 | $18.24 | $13.57 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 4.84 | (n) | 20.90 | (c) | (4.15 | ) | 7.29 | 45.71 | 14.74 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.53 | (a) | 0.42 | (c) | 0.54 | 0.51 | 0.51 | 0.58 | ||||||||||||||||
Expenses after expense reductions (f) | 0.53 | (a) | 0.41 | (c) | 0.53 | 0.50 | 0.51 | N/A | ||||||||||||||||
Net investment income | 1.05 | (a) | 0.92 | (c) | 1.03 | 0.56 | 0.68 | 1.22 | ||||||||||||||||
Portfolio turnover | 39 | (n) | 72 | 78 | 67 | 69 | 82 | |||||||||||||||||
Net assets at end of period (000 omitted) | $35,850 | $28,715 | $27,795 | $31,323 | $33,401 | $29,429 | ||||||||||||||||||
Service Class | Six months 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $12.92 | $12.03 | $15.75 | $17.96 | $13.38 | $12.26 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.05 | $0.08 | (c) | $0.12 | $0.05 | $0.07 | $0.15 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.56 | 2.29 | (0.93 | ) | 1.15 | 5.82 | 1.63 | |||||||||||||||||
Total from investment operations | $0.61 | $2.37 | $(0.81 | ) | $1.20 | $5.89 | $1.78 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.12 | ) | $(0.05 | ) | $(0.13 | ) | $(0.24 | ) | $(0.05 | ) | |||||||||||||
From net realized gain on investments | — | (1.36 | ) | (2.86 | ) | (3.28 | ) | (1.07 | ) | (0.61 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.48 | ) | $(2.91 | ) | $(3.41 | ) | $(1.31 | ) | $(0.66 | ) | |||||||||||||
Net asset value, end of period (x) | $13.53 | $12.92 | $12.03 | $15.75 | $17.96 | $13.38 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 4.72 | (n) | 20.58 | (c) | (4.38 | ) | 7.04 | 45.33 | 14.39 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.78 | (a) | 0.67 | (c) | 0.79 | 0.76 | 0.76 | 0.83 | ||||||||||||||||
Expenses after expense reductions (f) | 0.78 | (a) | 0.66 | (c) | 0.78 | 0.75 | 0.76 | N/A | ||||||||||||||||
Net investment income | 0.76 | (a) | 0.66 | (c) | 0.79 | 0.30 | 0.42 | 1.11 | ||||||||||||||||
Portfolio turnover | 39 | (n) | 72 | 78 | 67 | 69 | 82 | |||||||||||||||||
Net assets at end of period (000 omitted) | $74,314 | $74,453 | $82,794 | $104,221 | $121,036 | $114,552 |
See Notes to Financial Statements
10
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MFS Blended Research Small Cap Equity Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
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MFS Blended Research Small Cap Equity Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Blended Research Small Cap Equity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund will generally focus on securities of small size companies which may be more volatile than those of larger companies.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price
12
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MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
United States | $107,184,702 | $— | $3 | $107,184,705 | ||||||||||||
Panama | 1,215,279 | — | — | 1,215,279 | ||||||||||||
United Kingdom | 900,281 | — | — | 900,281 | ||||||||||||
Bermuda | 247,123 | — | — | 247,123 | ||||||||||||
Mutual Funds | 2,711,541 | — | — | 2,711,541 | ||||||||||||
Total Investments | $112,258,926 | $— | $3 | $112,258,929 |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
Balance as of 12/31/16 | $3 | |||
Change in unrealized appreciation (depreciation) | — | |||
Balance as of 6/30/17 | $3 |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2017 is $0. At June 30, 2017, the fund held one level 3 security.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. In the event of Borrower default, State Street will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, State Street assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, State Street is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $2,382,854. The fair value of the fund’s investment securities on loan and a related liability of $1,962,395 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of $504,478. The collateral received on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between
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MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend 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 fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $1,047,437 | |||
Long-term capital gains | 10,876,539 | |||
Total distributions | $11,923,976 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $95,684,517 | |||
Gross appreciation | 21,119,448 | |||
Gross depreciation | (4,545,036 | ) | ||
Net unrealized appreciation (depreciation) | $16,574,412 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 2,112,252 | |||
Undistributed long-term capital gain | 10,060,948 | |||
Other temporary differences | 4,347 | |||
Net unrealized appreciation (depreciation) | 16,699,829 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are
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MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $332,420 | $— | $2,827,655 | ||||||||||||
Service Class | — | 715,017 | — | 8,048,884 | ||||||||||||
Total | $— | $1,047,437 | $— | $10,876,539 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.40% of the fund’s average daily net assets.
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $4,026, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.39% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.60% of average daily net assets for the Initial Class shares and 0.85% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $3,805, which equated to 0.0073% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $678.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0251% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement.
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MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $94 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of investments, other than short-term obligations, aggregated $44,274,887 and $41,062,567, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 581,060 | $7,993,077 | 227,042 | $2,906,832 | ||||||||||||
Service Class | 273,544 | 3,565,228 | 140,305 | 1,746,230 | ||||||||||||
854,604 | $11,558,305 | 367,347 | $4,653,062 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 256,917 | $3,160,075 | ||||||||||||
Service Class | — | — | 729,110 | 8,763,901 | ||||||||||||
— | $— | 986,027 | $11,923,976 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (167,113 | ) | $(2,272,199 | ) | (575,061 | ) | $(7,148,347 | ) | ||||||||
Service Class | (543,813 | ) | (7,187,910 | ) | (1,990,124 | ) | (24,566,458 | ) | ||||||||
(710,926 | ) | $(9,460,109 | ) | (2,565,185 | ) | $(31,714,805 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | 413,947 | $5,720,878 | (91,102 | ) | $(1,081,440 | ) | ||||||||||
Service Class | (270,269 | ) | (3,622,682 | ) | (1,120,709 | ) | (14,056,327 | ) | ||||||||
143,678 | $2,098,196 | (1,211,811 | ) | $(15,137,767 | ) |
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $360 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 1,052,191 | 16,007,873 | (16,310,918 | ) | 749,146 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $598 | $— | $3,853 | $749,146 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | | 4,162,216,171.60 | | 229,862,637.06 | ||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® CONSERVATIVE ALLOCATION PORTFOLIO
MFS® Variable Insurance Trust III
VCA-SEM
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MFS® CONSERVATIVE ALLOCATION PORTFOLIO
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
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LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio target allocation
Portfolio holdings | ||||
MFS Total Return Bond Series | 16.9% | |||
MFS Limited Maturity Portfolio | 12.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 10.0% | |||
MFS Government Securities Portfolio | 10.0% | |||
MFS Global Governments Portfolio | 8.0% | |||
MFS Value Series | 6.0% | |||
MFS Research Series | 6.0% | |||
MFS Growth Series | 5.9% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Mid Cap Value Portfolio | 4.0% | |||
MFS Mid Cap Growth Series | 4.0% | |||
MFS Research International Portfolio | 3.9% | |||
MFS Global Real Estate Portfolio | 2.0% | |||
MFS International Value Portfolio | 2.0% | |||
MFS International Growth Portfolio | 2.0% | |||
MFS New Discovery Value Portfolio | 1.0% | |||
MFS New Discovery Series | 1.0% | |||
Cash & Cash Equivalents | 0.3% |
Portfolio actual allocation
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.02% | $1,000.00 | $1,063.01 | $0.10 | |||||||||||||
Hypothetical (h) | 0.02% | $1,000.00 | $1,024.70 | $0.10 | ||||||||||||||
Service Class | Actual | 0.27% | $1,000.00 | $1,062.96 | $1.38 | |||||||||||||
Hypothetical (h) | 0.27% | $1,000.00 | $1,023.46 | $1.35 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
UNDERLYING AFFILIATED FUNDS – 99.7% | ||||||||
MFS Global Governments Portfolio – Initial Class (a) | 4,577,857 | $ | 47,106,146 | |||||
MFS Global Real Estate Portfolio – Initial Class | 787,423 | 11,787,716 | ||||||
MFS Government Securities Portfolio – Initial Class | 4,632,576 | 58,880,040 | ||||||
MFS Growth Series – Initial Class | 768,584 | 34,932,124 | ||||||
MFS High Yield Portfolio – Initial Class | 4,890,155 | 29,536,535 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class (a) | 5,710,747 | 58,992,021 | ||||||
MFS International Growth Portfolio – Initial Class | 807,257 | 11,697,149 | ||||||
MFS International Value Portfolio – Initial Class | 447,090 | 11,718,237 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 6,882,967 | 70,825,734 | ||||||
MFS Mid Cap Growth Series – Initial Class | 2,571,845 | 23,506,665 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 2,695,289 | 23,691,592 | ||||||
MFS New Discovery Series – Initial Class | 327,074 | 5,874,256 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 528,392 | 5,923,280 | ||||||
MFS Research International Portfolio – Initial Class | 1,491,544 | 23,476,901 | ||||||
MFS Research Series – Initial Class | 1,217,776 | 35,388,559 | ||||||
MFS Total Return Bond Series – Initial Class | 7,436,574 | 100,170,649 | ||||||
MFS Value Series – Initial Class | 1,720,880 | 35,484,536 | ||||||
|
| |||||||
Total Underlying Affiliated Funds (Identified Cost, $533,071,385) | $ | 588,992,140 | ||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
MONEY MARKET FUNDS – 0.3% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $1,386,297) | 1,386,426 | $ | 1,386,426 | |||||
|
| |||||||
Total Investments (Identified Cost, $534,457,682) | $ | 590,378,566 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 0.0% | 188,201 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 590,566,767 | ||||||
|
|
(a) | Non-income producing security. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Underlying affiliated funds, at value (identified cost, $534,457,682) | $590,378,566 | |||
Receivables for | ||||
Investments sold | 934,083 | |||
Fund shares sold | 751 | |||
Other assets | 2,296 | |||
Total assets | $591,315,696 | |||
Liabilities | ||||
Payable for fund shares reacquired | $698,894 | |||
Payable to affiliates | ||||
Administrator | 96 | |||
Shareholder servicing costs | 68 | |||
Distribution and/or service fees | 8,084 | |||
Payable for independent Trustees’ compensation | 451 | |||
Accrued expenses and other liabilities | 41,336 | |||
Total liabilities | $748,929 | |||
Net assets | $590,566,767 | |||
Net assets consist of | ||||
Paid-in capital | $504,509,692 | |||
Unrealized appreciation (depreciation) on investments | 55,920,884 | |||
Accumulated net realized gain (loss) on investments | 19,965,120 | |||
Undistributed net investment income | 10,171,071 | |||
Net assets | $590,566,767 | |||
Shares of beneficial interest outstanding | 50,711,597 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $2,240,050 | 192,378 | $11.64 | |||||||||
Service Class | 588,326,717 | 50,519,219 | 11.65 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment loss | ||||
Dividends from underlying affiliated funds | $4,440 | |||
Expenses | ||||
Distribution and/or service fees | 748,110 | |||
Shareholder servicing costs | 6,788 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 7,812 | |||
Custodian fee | 5,571 | |||
Shareholder communications | 13,127 | |||
Audit and tax fees | 18,985 | |||
Legal fees | 3,433 | |||
Miscellaneous | 9,058 | |||
Total expenses | $821,563 | |||
Net investment loss | $(817,123 | ) | ||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) on investments in underlying affiliated funds (identified cost basis) | $6,517,073 | |||
Change in unrealized appreciation (depreciation) on investments | $31,044,494 | |||
Net realized and unrealized gain (loss) on investments | $37,561,567 | |||
Change in net assets from operations | $36,744,444 |
See Notes to Financial Statements
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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 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(817,123 | ) | $10,988,313 | |||||
Net realized gain (loss) on investments | 6,517,073 | 15,444,977 | ||||||
Net unrealized gain (loss) on investments | 31,044,494 | 5,301,508 | ||||||
Change in net assets from operations | $36,744,444 | $31,734,798 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(16,110,618 | ) | |||||
From net realized gain on investments | — | (22,418,780 | ) | |||||
Total distributions declared to shareholders | $— | $(38,529,398 | ) | |||||
Change in net assets from fund share transactions | $(61,408,146 | ) | $(71,588,922 | ) | ||||
Total change in net assets | $(24,663,702 | ) | $(78,383,522 | ) | ||||
Net assets | ||||||||
At beginning of period | 615,230,469 | 693,613,991 | ||||||
At end of period (including undistributed net investment income of $10,171,071 and | $590,566,767 | $615,230,469 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.95 | $11.09 | $11.79 | $11.61 | $11.80 | $11.47 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.00 | )(w) | $0.22 | (c) | $0.24 | $0.20 | $0.11 | $0.14 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.69 | 0.36 | (0.27 | ) | 0.34 | 0.97 | 0.88 | |||||||||||||||||
Total from investment operations | $0.69 | $0.58 | $(0.03 | ) | $0.54 | $1.08 | $1.02 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.32 | ) | $(0.41 | ) | $(0.22 | ) | $(0.37 | ) | $(0.35 | ) | |||||||||||||
From net realized gain on investments | — | (0.40 | ) | (0.26 | ) | (0.14 | ) | (0.90 | ) | (0.34 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.72 | ) | $(0.67 | ) | $(0.36 | ) | $(1.27 | ) | $(0.69 | ) | |||||||||||||
Net asset value, end of period (x) | $11.64 | $10.95 | $11.09 | $11.79 | $11.61 | $11.80 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.30 | (n) | 5.03 | (c) | (0.19 | ) | 4.61 | 9.82 | 8.90 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.02 | (a) | 0.02 | (c) | 0.01 | 0.02 | 0.03 | 0.16 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.02 | 0.03 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.02 | )(a) | 1.92 | (c) | 2.06 | 1.66 | 0.93 | 1.14 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 1 | 2 | 1 | 1 | 57 | |||||||||||||||||
Net assets at end of period (000 omitted) | $2,240 | $2,266 | $2,419 | $2,948 | $4,167 | $5,024 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.96 | $11.10 | $11.80 | $11.61 | $11.80 | $11.46 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.19 | (c) | $0.21 | $0.16 | $0.07 | $0.14 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.71 | 0.35 | (0.28 | ) | 0.36 | 0.98 | 0.86 | |||||||||||||||||
Total from investment operations | $0.69 | $0.54 | $(0.07 | ) | $0.52 | $1.05 | $1.00 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.28 | ) | $(0.37 | ) | $(0.19 | ) | $(0.34 | ) | $(0.32 | ) | |||||||||||||
From net realized gain on investments | — | (0.40 | ) | (0.26 | ) | (0.14 | ) | (0.90 | ) | (0.34 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.68 | ) | $(0.63 | ) | $(0.33 | ) | $(1.24 | ) | $(0.66 | ) | |||||||||||||
Net asset value, end of period (x) | $11.65 | $10.96 | $11.10 | $11.80 | $11.61 | $11.80 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.30 | (n) | 4.73 | (c) | (0.49 | ) | 4.41 | 9.52 | 8.72 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.27 | (a) | 0.27 | (c) | 0.26 | 0.27 | 0.28 | 0.41 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.27 | 0.28 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.27 | )(a) | 1.66 | (c) | 1.80 | 1.36 | 0.62 | 1.14 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 1 | 2 | 1 | 1 | 57 | |||||||||||||||||
Net assets at end of period (000 omitted) | $588,327 | $612,965 | $691,195 | $801,775 | $896,495 | $966,119 |
See Notes to Financial Statements
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MFS Conservative Allocation Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
(a) | Annualized. |
(b) | Less than 0.5%. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(l) | Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by the underlying affiliated funds in which the fund invests and for interim net investment income ratios, the actual annual net investment income ratio may differ. The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w) | Per share amount was less than $0.01. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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MFS Conservative Allocation Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Conservative Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in 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. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and that value may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov or at the SEC’s public reference room in Washington, D.C. The underlying funds’ shareholder reports are not covered by this report.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Investment Valuations – Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are
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Notes to Financial Statements (unaudited) – continued
generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued at valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $590,378,566 | $— | $— | $590,378,566 |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
Derivatives – The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
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Notes to Financial Statements (unaudited) – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on an accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $17,225,958 | |||
Long-term capital gains | 21,303,440 | |||
Total distributions | $38,529,398 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $536,783,984 | |||
Gross appreciation | 60,193,613 | |||
Gross depreciation | (6,599,031 | ) | ||
Net unrealized appreciation (depreciation) | $53,594,582 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 11,661,625 | |||
Undistributed long-term capital gain | 15,100,918 | |||
Net unrealized appreciation (depreciation) | 22,550,088 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to
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MFS Conservative Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $63,216 | $— | $78,776 | ||||||||||||
Service Class | — | 16,047,402 | — | 22,340,004 | ||||||||||||
Total | $— | $16,110,618 | $— | $22,418,780 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $6,506, which equated to 0.0022% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $282.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0029% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $587 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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Notes to Financial Statements (unaudited) – continued
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of shares of underlying funds aggregated $1,216,640 and $63,454,230, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 7,680 | $86,057 | 4,714 | $53,379 | ||||||||||||
Service Class | 339,274 | 3,794,642 | 1,740,149 | 19,371,122 | ||||||||||||
346,954 | $3,880,699 | 1,744,863 | $19,424,501 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 12,667 | $141,992 | ||||||||||||
Service Class | — | — | 3,418,291 | 38,387,406 | ||||||||||||
— | $— | 3,430,958 | $38,529,398 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (22,254 | ) | $(247,884 | ) | (28,643 | ) | $(322,731 | ) | ||||||||
Service Class | (5,735,013 | ) | (65,040,961 | ) | (11,535,443 | ) | (129,220,090 | ) | ||||||||
(5,757,267 | ) | $(65,288,845 | ) | (11,564,086 | ) | $(129,542,821 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (14,574 | ) | $(161,827 | ) | (11,262 | ) | $(127,360 | ) | ||||||||
Service Class | (5,395,739 | ) | (61,246,319 | ) | (6,377,003 | ) | (71,461,562 | ) | ||||||||
(5,410,313 | ) | $(61,408,146 | ) | (6,388,265 | ) | $(71,588,922 | ) |
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $2,176 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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Notes to Financial Statements (unaudited) – continued
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
Underlying Affiliated Funds | Beginning Share/Par Amount | Acquisitions Share/Par Amount | Dispositions Share/Par Amount | Ending Share/Par Amount | ||||||||||
MFS Global Governments Portfolio | 4,938,466 | 8,291 | (368,900 | ) | 4,577,857 | |||||||||
MFS Global Real Estate Portfolio | 890,228 | 4,284 | (107,089 | ) | 787,423 | |||||||||
MFS Government Securities Portfolio | 4,926,875 | 5,273 | (299,572 | ) | 4,632,576 | |||||||||
MFS Growth Series | 938,398 | 877 | (170,691 | ) | 768,584 | |||||||||
MFS High Yield Portfolio | 5,316,638 | 12,910 | (439,393 | ) | 4,890,155 | |||||||||
MFS Inflation-Adjusted Bond Portfolio | 6,208,240 | 21,379 | (518,872 | ) | 5,710,747 | |||||||||
MFS Institutional Money Market Portfolio | 1,174,771 | 26,377,640 | (26,165,985 | ) | 1,386,426 | |||||||||
MFS International Growth Portfolio | 1,018,004 | — | (210,747 | ) | 807,257 | |||||||||
MFS International Value Portfolio | 545,861 | 575 | (99,346 | ) | 447,090 | |||||||||
MFS Limited Maturity Portfolio | 7,249,706 | 4,821 | (371,560 | ) | 6,882,967 | |||||||||
MFS Mid Cap Growth Series | 3,055,327 | 8,045 | (491,527 | ) | 2,571,845 | |||||||||
MFS Mid Cap Value Portfolio | 2,941,536 | 15,141 | (261,388 | ) | 2,695,289 | |||||||||
MFS New Discovery Series | 376,974 | 1,636 | (51,536 | ) | 327,074 | |||||||||
MFS New Discovery Value Portfolio | 566,503 | 5,751 | (43,862 | ) | 528,392 | |||||||||
MFS Research International Portfolio | 1,818,764 | 1,401 | (328,621 | ) | 1,491,544 | |||||||||
MFS Research Series | 1,404,106 | 2,857 | (189,187 | ) | 1,217,776 | |||||||||
MFS Total Return Bond Series | 8,000,609 | 6,147 | (570,182 | ) | 7,436,574 | |||||||||
MFS Value Series | 1,935,497 | 7,935 | (222,552 | ) | 1,720,880 | |||||||||
Underlying Affiliated Funds | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||
MFS Global Governments Portfolio | $(359,306) | $— | $— | $47,106,146 | ||||||||||
MFS Global Real Estate Portfolio | 193,574 | — | — | 11,787,716 | ||||||||||
MFS Government Securities Portfolio | (261,434) | — | — | 58,880,040 | ||||||||||
MFS Growth Series | 2,543,494 | — | — | 34,932,124 | ||||||||||
MFS High Yield Portfolio | (71,216) | — | — | 29,536,535 | ||||||||||
MFS Inflation-Adjusted Bond Portfolio | (246,965) | — | — | 58,992,021 | ||||||||||
MFS Institutional Money Market Portfolio | (229) | — | 4,440 | 1,386,426 | ||||||||||
MFS International Growth Portfolio | 348,639 | — | — | 11,697,149 | ||||||||||
MFS International Value Portfolio | 743,356 | — | — | 11,718,237 | ||||||||||
MFS Limited Maturity Portfolio | (20,840) | — | — | 70,825,734 | ||||||||||
MFS Mid Cap Growth Series | 911,769 | — | — | 23,506,665 | ||||||||||
MFS Mid Cap Value Portfolio | 50,197 | — | — | 23,691,592 | ||||||||||
MFS New Discovery Series | (4,601) | — | — | 5,874,256 | ||||||||||
MFS New Discovery Value Portfolio | 72,678 | — | — | 5,923,280 | ||||||||||
MFS Research International Portfolio | 505,320 | — | — | 23,476,901 | ||||||||||
MFS Research Series | 1,133,971 | — | — | 35,388,559 | ||||||||||
MFS Total Return Bond Series | (293,943) | — | — | 100,170,649 | ||||||||||
MFS Value Series | 1,272,609 | — | — | 35,484,536 | ||||||||||
$6,517,073 | $— | $4,440 | $590,378,566 |
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MFS Conservative Allocation Portfolio
RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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MFS Conservative Allocation Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® GLOBAL REAL ESTATE PORTFOLIO
MFS® Variable Insurance Trust III
VRE-SEM
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MFS® GLOBAL REAL ESTATE PORTFOLIO
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
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MFS Global Real Estate Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure
Top ten holdings | ||||
Simon Property Group, Inc., REIT | 4.6% | |||
Public Storage, Inc., REIT | 4.0% | |||
Unibail-Rodamco, REIT | 3.5% | |||
Mitsui Fudosan Co. Ltd. | 3.4% | |||
AvalonBay Communities, Inc., REIT | 3.0% | |||
Alexandria Real Estate Equities, Inc., REIT | 3.0% | |||
Boardwalk, REIT | 2.9% | |||
Mid-America Apartment Communities, Inc., REIT | 2.8% | |||
Hang Lung Properties Ltd. | 2.7% | |||
Equity Lifestyle Properties, Inc., REIT | 2.6% | |||
Equity industries | ||||
Real Estate | 97.4% | |||
Telecommunications – Wireless | 2.1% |
Issuer country weightings (x) | ||||
United States | 54.2% | |||
Japan | 8.8% | |||
Hong Kong | 7.6% | |||
United Kingdom | 6.8% | |||
Australia | 4.7% | |||
Singapore | 4.2% | |||
Canada | 3.9% | |||
France | 3.5% | |||
Germany | 2.9% | |||
Other Countries | 3.4% | |||
Currency exposure weightings (y) | ||||
United States Dollar | 54.2% | |||
Japanese Yen | 8.8% | |||
Euro | 8.6% | |||
Hong Kong Dollar | 7.6% | |||
British Pound Sterling | 6.8% | |||
Australian Dollar | 4.7% | |||
Singapore Dollar | 4.2% | |||
Canadian Dollar | 3.9% | |||
Norwegian Krone | 1.2% |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
(y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.92% | $1,000.00 | $1,068.52 | $4.72 | |||||||||||||
Hypothetical (h) | 0.92% | $1,000.00 | $1,020.23 | $4.61 | ||||||||||||||
Service Class | Actual | 1.17% | $1,000.00 | $1,067.34 | $6.00 | |||||||||||||
Hypothetical (h) | 1.17% | $1,000.00 | $1,018.99 | $5.86 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 99.5% | ||||||||
Real Estate – 97.4% | ||||||||
Advance Residence Investment Corp., REIT | 1,660 | $ | 4,125,094 | |||||
Alexandria Real Estate Equities, Inc., REIT | 46,330 | 5,581,375 | ||||||
American Homes 4 Rent, “A”, REIT | 136,373 | 3,077,939 | ||||||
Ascendas India Trust, REIT | 4,441,000 | 3,661,184 | ||||||
Atrium European Real Estate Ltd. | 526,520 | 2,350,734 | ||||||
AvalonBay Communities, Inc., REIT | 29,198 | 5,610,980 | ||||||
Big Yellow Group PLC, REIT | 324,079 | 3,343,005 | ||||||
Boardwalk, REIT | 149,547 | 5,483,467 | ||||||
Brixmor Property Group Inc., REIT | 77,414 | 1,384,162 | ||||||
Cheung Kong Property Holdings Ltd. | 130,500 | 1,022,110 | ||||||
Derwent London PLC, REIT | 116,292 | 4,019,867 | ||||||
Dream Office, REIT | 125,864 | 1,897,472 | ||||||
Entra ASA | 173,607 | 2,162,615 | ||||||
Equity Commonwealth, REIT (a) | 60,858 | 1,923,113 | ||||||
Equity Lifestyle Properties, Inc., REIT | 56,797 | 4,903,853 | ||||||
Fortune REIT | 1,177,000 | 1,460,801 | ||||||
Gateway Lifestyle Group Stapled Security | 3,102,220 | 4,649,514 | ||||||
Gramercy Property Trust, REIT | 153,982 | 4,574,805 | ||||||
Grand City Properties S.A. | 147,679 | 2,959,342 | ||||||
Hang Lung Properties Ltd. | 2,036,944 | 5,087,501 | ||||||
Hibernia PLC, REIT | 1,166,721 | 1,832,284 | ||||||
Japan Logistics Fund, Inc., REIT | 1,420 | 2,947,944 | ||||||
Kenedix Office Investment Corp., REIT | 551 | 2,939,320 | ||||||
Kerry Properties Ltd. | 549,000 | 1,863,413 | ||||||
LEG Immobilien AG | 25,812 | 2,426,595 | ||||||
Life Storage, Inc., REIT | 59,116 | 4,380,496 | ||||||
Link REIT | 644,264 | 4,901,636 | ||||||
LondonMetric Property PLC, REIT | 1,198,168 | 2,612,367 | ||||||
Mapletree Logistics Trust, REIT | 4,871,303 | 4,228,224 | ||||||
Medical Properties Trust, Inc., REIT | 371,885 | 4,786,160 | ||||||
Mid-America Apartment Communities, Inc., REIT | 49,215 | 5,186,277 | ||||||
Mitsui Fudosan Co. Ltd. | 271,475 | 6,469,782 | ||||||
National Storage, REIT | 3,607,478 | 4,186,788 | ||||||
OUTFRONT Media, Inc., REIT | 104,919 | 2,425,727 | ||||||
Parkway, Inc., REIT | 105,738 | 2,420,343 | ||||||
Public Storage, Inc., REIT | 35,831 | 7,471,838 | ||||||
Ramco-Gershenson Properties Trust, REIT | 116,609 | 1,504,256 | ||||||
Rexford Industrial Realty, Inc., REIT | 69,313 | 1,901,949 | ||||||
Shaftesbury PLC, REIT | 218,081 | 2,762,284 | ||||||
Simon Property Group, Inc., REIT | 53,170 | 8,600,777 | ||||||
STAG Industrial, Inc., REIT | 147,590 | 4,073,484 | ||||||
Starwood Property Trust, Inc., REIT | 145,818 | 3,264,865 | ||||||
Store Capital Corp., REIT | 211,111 | 4,739,442 | ||||||
Sun Communities, Inc., REIT | 53,700 | 4,708,953 | ||||||
Unibail-Rodamco, REIT | 26,276 | 6,621,955 | ||||||
Urban Edge Properties, REIT | 117,691 | 2,792,807 | ||||||
Washington Prime Group, Inc., REIT | 453,878 | 3,798,959 | ||||||
Welltower, Inc., REIT | 65,282 | 4,886,358 | ||||||
Weyerhaeuser Co., REIT | 83,054 | 2,782,309 | ||||||
|
| |||||||
$ | 182,796,525 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Telecommunications – Wireless – 2.1% | ||||||||
American Tower Corp., REIT | 29,617 | $ | 3,918,921 | |||||
|
| |||||||
Total Common Stocks (Identified Cost, $164,223,477) | $ | 186,715,446 | ||||||
|
| |||||||
MONEY MARKET FUNDS – 0.2% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $313,552) | 313,584 | $ | 313,584 | |||||
|
| |||||||
Total Investments (Identified Cost, $164,537,029) | $ | 187,029,030 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 0.3% | 590,050 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 187,619,080 | ||||||
|
|
(a) | Non-income producing security. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $164,223,477) | $186,715,446 | |||
Underlying affiliated funds, at value (identified cost, $313,552) | 313,584 | |||
Total investments, at value (identified cost, $164,537,029) | $187,029,030 | |||
Foreign currency, at value (identified cost, $165,478) | 165,142 | |||
Receivables for | ||||
Investments sold | 1,070,473 | |||
Fund shares sold | 240 | |||
Dividends | 1,057,091 | |||
Receivable from investment adviser | 4,179 | |||
Other assets | 863 | |||
Total assets | $189,327,018 | |||
Liabilities | ||||
Payables for |
| |||
Investments purchased | $1,417,915 | |||
Fund shares reacquired | 217,021 | |||
Payable to affiliates |
| |||
Shareholder servicing costs | 33 | |||
Distribution and/or service fees | 994 | |||
Payable for independent Trustees’ compensation | 642 | |||
Accrued expenses and other liabilities | 71,333 | |||
Total liabilities | $1,707,938 | |||
Net assets | $187,619,080 | |||
Net assets consist of | ||||
Paid-in capital | $148,012,072 | |||
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 22,490,931 | |||
Accumulated net realized gain (loss) on investments and foreign currency | 6,391,510 | |||
Undistributed net investment income | 10,724,567 | |||
Net assets | $187,619,080 | |||
Shares of beneficial interest outstanding | 11,968,304 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $115,308,788 | 7,703,776 | $14.97 | |||||||||
Service Class | 72,310,292 | 4,264,528 | 16.96 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment income |
| |||
Income |
| |||
Dividends | $4,384,318 | |||
Dividends from underlying affiliated funds | 5,589 | |||
Foreign taxes withheld | (204,467 | ) | ||
Total investment income | $4,185,440 | |||
Expenses |
| |||
Management fee | $849,825 | |||
Distribution and/or service fees | 92,858 | |||
Shareholder servicing costs | 3,885 | |||
Administrative services fee | 19,939 | |||
Independent Trustees’ compensation | 2,796 | |||
Custodian fee | 17,270 | |||
Shareholder communications | 22,649 | |||
Audit and tax fees | 26,723 | |||
Legal fees | 1,078 | |||
Miscellaneous | 6,330 | |||
Total expenses | $1,043,353 | |||
Reduction of expenses by investment adviser | (80,646 | ) | ||
Net expenses | $962,707 | |||
Net investment income | $3,222,733 | |||
Realized and unrealized gain (loss) on investments and foreign currency |
| |||
Realized gain (loss) (identified cost basis) |
| |||
Investments: |
| |||
Non-affiliated issuers | $(854,672 | ) | ||
Underlying affiliated funds | 81 | |||
Foreign currency | (550 | ) | ||
Net realized gain (loss) on investments and foreign currency | $(855,141 | ) | ||
Change in unrealized appreciation (depreciation) |
| |||
Investments | $10,208,130 | |||
Translation of assets and liabilities in foreign currencies | 15,140 | |||
Net unrealized gain (loss) on investments and foreign currency translation | $10,223,270 | |||
Net realized and unrealized gain (loss) on investments and foreign currency | $9,368,129 | |||
Change in net assets from operations | $12,590,862 |
See Notes to Financial Statements
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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 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets |
| |||||||
From operations | ||||||||
Net investment income | $3,222,733 | $4,991,786 | ||||||
Net realized gain (loss) on investments and foreign currency | (855,141 | ) | 11,269,493 | |||||
Net unrealized gain (loss) on investments and foreign currency translation | 10,223,270 | (394,920 | ) | |||||
Change in net assets from operations | $12,590,862 | $15,866,359 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(4,607,565 | ) | |||||
From net realized gain on investments | — | (3,314,243 | ) | |||||
Total distributions declared to shareholders | $— | $(7,921,808 | ) | |||||
Change in net assets from fund share transactions | $(15,248,008 | ) | $(25,366,300 | ) | ||||
Total change in net assets | $(2,657,146 | ) | $(17,421,749 | ) | ||||
Net assets | ||||||||
At beginning of period | 190,276,226 | 207,697,975 | ||||||
At end of period (including undistributed net investment income of $10,724,567 and | $187,619,080 | $190,276,226 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $14.01 | $13.55 | $14.06 | $12.43 | $12.54 | $9.75 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.25 | $0.37 | (c) | $0.29 | $0.26 | $0.26 | $0.25 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.71 | 0.74 | (0.23 | ) | 1.68 | 0.34 | 2.66 | |||||||||||||||||
Total from investment operations | $0.96 | $1.11 | $0.06 | $1.94 | $0.60 | $2.91 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.39 | ) | $(0.57 | ) | $(0.31 | ) | $(0.71 | ) | $(0.12 | ) | |||||||||||||
From net realized gain on investments | — | (0.26 | ) | — | — | — | — | |||||||||||||||||
Total distributions declared to shareholders | $— | $(0.65 | ) | $(0.57 | ) | $(0.31 | ) | $(0.71 | ) | $(0.12 | ) | |||||||||||||
Net asset value, end of period (x) | $14.97 | $14.01 | $13.55 | $14.06 | $12.43 | $12.54 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.85 | (n) | 7.94 | (c) | 0.74 | 15.62 | 5.07 | 29.93 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.01 | (a) | 0.97 | (c) | 1.00 | 0.98 | 1.01 | 1.09 | ||||||||||||||||
Expenses after expense reductions (f) | 0.92 | (a) | 0.91 | (c) | 0.94 | 0.95 | 0.95 | 1.05 | ||||||||||||||||
Net investment income | 3.52 | (a) | 2.63 | (c) | 2.11 | 1.93 | 2.02 | 2.21 | ||||||||||||||||
Portfolio turnover | 17 | (n) | 30 | 40 | 25 | 34 | 54 | |||||||||||||||||
Net assets at end of period (000 omitted) | $115,309 | $115,023 | $124,563 | $143,090 | $151,176 | $147,846 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $15.89 | $15.28 | $15.77 | $13.91 | $13.94 | $10.84 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.27 | $0.38 | (c) | $0.29 | $0.25 | $0.26 | $0.23 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.80 | 0.83 | (0.25 | ) | 1.88 | 0.38 | 2.96 | |||||||||||||||||
Total from investment operations | $1.07 | $1.21 | $0.04 | $2.13 | $0.64 | $3.19 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.34 | ) | $(0.53 | ) | $(0.27 | ) | $(0.67 | ) | $(0.09 | ) | |||||||||||||
From net realized gain on investments | — | (0.26 | ) | — | — | — | — | |||||||||||||||||
Total distributions declared to shareholders | $— | $(0.60 | ) | $(0.53 | ) | $(0.27 | ) | $(0.67 | ) | $(0.09 | ) | |||||||||||||
Net asset value, end of period (x) | $16.96 | $15.89 | $15.28 | $15.77 | $13.91 | $13.94 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.73 | (n) | 7.70 | (c) | 0.47 | 15.31 | 4.84 | 29.47 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.26 | (a) | 1.22 | (c) | 1.25 | 1.23 | 1.26 | 1.34 | ||||||||||||||||
Expenses after expense reductions (f) | 1.17 | (a) | 1.16 | (c) | 1.19 | 1.20 | 1.20 | 1.30 | ||||||||||||||||
Net investment income | 3.25 | (a) | 2.37 | (c) | 1.84 | 1.67 | 1.78 | 1.88 | ||||||||||||||||
Portfolio turnover | 17 | (n) | 30 | 40 | 25 | 34 | 54 | |||||||||||||||||
Net assets at end of period (000 omitted) | $72,310 | $75,253 | $83,135 | $99,204 | $114,111 | $113,528 |
See Notes to Financial Statements
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MFS Global Real Estate Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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MFS Global Real Estate Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Global Real Estate Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant amount of its net assets in U.S. and foreign real estate related investments and as a result is subject to certain risks associated with the direct ownership of real estate and the real estate industry in general. These include risks related to general, regional and local economic conditions; fluctuations in interest rates; property tax rates, zoning laws, environmental regulations and other governmental action; cash flow dependency; increased operating expenses; lack of availability of mortgage funds; losses due to natural disasters; changes in property values and rental rates; and other factors. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally
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Notes to Financial Statements (unaudited) – continued
traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $186,715,446 | $— | $— | $186,715,446 | ||||||||||||
Mutual Funds | 313,584 | — | — | 313,584 | ||||||||||||
Total Investments | $187,029,030 | $— | $— | $187,029,030 |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 1 investments presented above, equity investments amounting to $51,112,677 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued using other observable market-based inputs. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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Notes to Financial Statements (unaudited) – continued
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $4,607,565 | |||
Long-term capital gains | 3,314,243 | |||
Total distributions | $7,921,808 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $167,747,222 | |||
Gross appreciation | 25,070,663 | |||
Gross depreciation | (5,788,855 | ) | ||
Net unrealized appreciation (depreciation) | $19,281,808 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 9,357,169 | |||
Undistributed long-term capital gain | 8,271,934 | |||
Other temporary differences | 313,365 | |||
Net unrealized appreciation (depreciation) | 9,073,678 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $3,072,515 | $— | $2,103,171 | ||||||||||||
Service Class | — | 1,535,050 | — | 1,211,072 | ||||||||||||
Total | $— | $4,607,565 | $— | $3,314,243 |
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Notes to Financial Statements (unaudited) – continued
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
First $1 billion of average daily net assets | 0.90% | |||||||
Next $1.5 billion of average daily net assets | 0.75% | |||||||
Average daily net assets in excess of $2.5 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $7,246, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.89% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.92% of average daily net assets for the Initial Class shares and 1.17% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, this reduction amounted to $73,400, which is included in the reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $3,145, which equated to 0.0033% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $740.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0211% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $176 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of investments, other than short-term obligations, aggregated $32,594,671 and $42,208,133, respectively.
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Notes to Financial Statements (unaudited) – continued
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 63,401 | $915,190 | 284,283 | $4,031,253 | ||||||||||||
Service Class | 117,232 | 1,866,515 | 372,899 | 5,924,989 | ||||||||||||
180,633 | $2,781,705 | 657,182 | $9,956,242 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 349,001 | $5,175,686 | ||||||||||||
Service Class | — | — | 163,168 | 2,746,122 | ||||||||||||
— | $— | 512,169 | $7,921,808 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (568,385 | ) | $(8,310,880 | ) | (1,618,412 | ) | $(23,330,710 | ) | ||||||||
Service Class | (587,605 | ) | (9,718,833 | ) | (1,240,603 | ) | (19,913,640 | ) | ||||||||
(1,155,990 | ) | $(18,029,713 | ) | (2,859,015 | ) | $(43,244,350 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (504,984 | ) | $(7,395,690 | ) | (985,128 | ) | $(14,123,771 | ) | ||||||||
Service Class | (470,373 | ) | (7,852,318 | ) | (704,536 | ) | (11,242,529 | ) | ||||||||
(975,357 | ) | $(15,248,008 | ) | (1,689,664 | ) | $(25,366,300 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 28%, 11%, and 6%, respectively, of the value of outstanding voting shares of the fund.
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $663 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 2,776,118 | 14,722,103 | (17,184,637 | ) | 313,584 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $81 | $— | $5,589 | $313,584 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars: | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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MFS Global Real Estate Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® GROWTH ALLOCATION PORTFOLIO
MFS® Variable Insurance Trust III
VGA-SEM
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MFS® GROWTH ALLOCATION PORTFOLIO
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
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MFS Growth Allocation Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio target allocation
Portfolio holdings | ||||
MFS Value Series | 11.0% | |||
MFS Growth Series | 10.9% | |||
MFS Research Series | 10.0% | |||
MFS Mid Cap Value Portfolio | 9.1% | |||
MFS Mid Cap Growth Series | 9.0% | |||
MFS Research International Portfolio | 8.9% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 5.0% | |||
MFS Global Real Estate Portfolio | 5.0% | |||
MFS Total Return Bond Series | 5.0% | |||
MFS International Value Portfolio | 5.0% | |||
MFS International Growth Portfolio | 5.0% | |||
MFS Global Governments Portfolio | 4.0% | |||
MFS New Discovery Value Portfolio | 2.0% | |||
MFS Limited Maturity Portfolio | 2.0% | |||
MFS New Discovery Series | 2.0% | |||
MFS Emerging Markets Equity Portfolio | 1.0% | |||
Cash & Cash Equivalents | 0.1% |
Portfolio actual allocation
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.03% | $1,000.00 | $1,107.57 | $0.16 | |||||||||||||
Hypothetical (h) | 0.03% | $1,000.00 | $1,024.65 | $0.15 | ||||||||||||||
Service Class | Actual | 0.28% | $1,000.00 | $1,105.65 | $1.46 | |||||||||||||
Hypothetical (h) | 0.28% | $1,000.00 | $1,023.41 | $1.40 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
UNDERLYING AFFILIATED FUNDS – 100.0% | ||||||||
MFS Emerging Markets Equity Portfolio – Initial Class | 279,688 | $ | 4,231,681 | |||||
MFS Global Governments Portfolio – Initial Class (a) | 1,648,334 | 16,961,360 | ||||||
MFS Global Real Estate Portfolio – Initial Class | 1,417,346 | 21,217,667 | ||||||
MFS Growth Series – Initial Class | 1,018,616 | 46,296,110 | ||||||
MFS High Yield Portfolio – Initial Class | 3,519,440 | 21,257,420 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class (a) | 2,055,936 | 21,237,820 | ||||||
MFS International Growth Portfolio – Initial Class | 1,455,352 | 21,088,044 | ||||||
MFS International Value Portfolio – Initial Class | 805,968 | 21,124,431 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 825,693 | 8,496,384 | ||||||
MFS Mid Cap Growth Series – Initial Class | 4,173,682 | 38,147,449 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 4,364,394 | 38,363,024 | ||||||
MFS New Discovery Series – Initial Class | 472,286 | 8,482,257 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 760,737 | 8,527,864 | ||||||
MFS Research International Portfolio – Initial Class | 2,417,829 | 38,056,631 | ||||||
MFS Research Series – Initial Class | 1,462,640 | 42,504,311 | ||||||
MFS Total Return Bond Series – Initial Class | 1,574,955 | 21,214,649 | ||||||
MFS Value Series – Initial Class | 2,270,517 | 46,818,054 | ||||||
|
| |||||||
Total Underlying Affiliated Funds (Identified Cost, $337,581,599) | $ | 424,025,156 | ||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
MONEY MARKET FUNDS – 0.0% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $139,260) | 139,260 | $ | 139,260 | |||||
Total Investments (Identified Cost, $337,720,859) | $ | 424,164,416 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 0.0% | 90,079 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 424,254,495 | ||||||
|
|
(a) | Non-income producing security. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Underlying affiliated funds, at value (identified cost, $337,720,859) | $424,164,416 | |||
Receivables for | ||||
Investments sold | 971,904 | |||
Fund shares sold | 234 | |||
Other assets | 1,624 | |||
Total assets | $425,138,178 | |||
Liabilities | ||||
Payable for fund shares reacquired | $844,855 | |||
Payable to affiliates | ||||
Administrator | 96 | |||
Shareholder servicing costs | 54 | |||
Distribution and/or service fees | 5,784 | |||
Payable for independent Trustees’ compensation | 291 | |||
Accrued expenses and other liabilities | 32,603 | |||
Total liabilities | $883,683 | |||
Net assets | $424,254,495 | |||
Net assets consist of | ||||
Paid-in capital | $303,722,928 | |||
Unrealized appreciation (depreciation) on investments | 86,443,557 | |||
Accumulated net realized gain (loss) on investments | 27,941,926 | |||
Undistributed net investment income | 6,146,084 | |||
Net assets | $424,254,495 | |||
Shares of beneficial interest outstanding | 34,946,205 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $3,881,085 | 319,428 | $12.15 | |||||||||
Service Class | 420,373,410 | 34,626,777 | 12.14 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment loss | ||||
Dividends from underlying affiliated funds | $609 | |||
Expenses | ||||
Distribution and/or service fees | 527,889 | |||
Shareholder servicing costs | 5,331 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 4,668 | |||
Custodian fee | 3,523 | |||
Shareholder communications | 9,104 | |||
Audit and tax fees | 18,970 | |||
Legal fees | 2,363 | |||
Miscellaneous | 7,801 | |||
Total expenses | $588,328 | |||
Net investment loss | $(587,719 | ) | ||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) on investments in underlying affiliated funds (identified cost basis) | $7,568,159 | |||
Change in unrealized appreciation (depreciation) on investments | $36,187,670 | |||
Net realized and unrealized gain (loss) on investments | $43,755,829 | |||
Change in net assets from operations | $43,168,110 |
See Notes to Financial Statements
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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 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(587,719 | ) | $6,733,946 | |||||
Net realized gain (loss) on investments | 7,568,159 | 21,721,064 | ||||||
Net unrealized gain (loss) on investments | 36,187,670 | 1,399,771 | ||||||
Change in net assets from operations | $43,168,110 | $29,854,781 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(10,983,900 | ) | |||||
From net realized gain on investments | — | (30,256,616 | ) | |||||
Total distributions declared to shareholders | $— | $(41,240,516 | ) | |||||
Change in net assets from fund share transactions | $(42,710,055 | ) | $(35,961,954 | ) | ||||
Total change in net assets | $458,055 | $(47,347,689 | ) | |||||
Net assets | ||||||||
At beginning of period | 423,796,440 | 471,144,129 | ||||||
At end of period (including undistributed net investment income of $6,146,084 and | $424,254,495 | $423,796,440 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.97 | $11.27 | $12.42 | $12.19 | $11.22 | $10.70 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.00 | )(w) | $0.20 | (c) | $0.21 | $0.16 | $0.12 | $0.26 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | 0.62 | (0.19 | ) | 0.50 | 2.28 | 1.11 | |||||||||||||||||
Total from investment operations | $1.18 | $0.82 | $0.02 | $0.66 | $2.40 | $1.37 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.32 | ) | $(0.58 | ) | $(0.21 | ) | $(0.32 | ) | $(0.30 | ) | |||||||||||||
From net realized gain on investments | — | (0.80 | ) | (0.59 | ) | (0.22 | ) | (1.11 | ) | (0.55 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.12 | ) | $(1.17 | ) | $(0.43 | ) | $(1.43 | ) | $(0.85 | ) | |||||||||||||
Net asset value, end of period (x) | $12.15 | $10.97 | $11.27 | $12.42 | $12.19 | $11.22 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 10.76 | (n) | 7.15 | (c) | 0.53 | 5.39 | 22.56 | 12.78 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.03 | (a) | 0.03 | (c) | 0.02 | 0.03 | 0.03 | 0.18 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.03 | 0.03 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.03 | )(a) | 1.81 | (c) | 1.75 | 1.29 | 0.98 | 2.31 | ||||||||||||||||
Portfolio turnover | 1 | (n) | 1 | 1 | 1 | 4 | 72 | |||||||||||||||||
Net assets at end of period (000 omitted) | $3,881 | $3,140 | $2,908 | $2,939 | $2,858 | $2,971 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.98 | $11.27 | $12.41 | $12.19 | $11.21 | $10.70 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.17 | (c) | $0.17 | $0.12 | $0.08 | $0.18 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.18 | 0.63 | (0.18 | ) | 0.50 | 2.30 | 1.15 | |||||||||||||||||
Total from investment operations | $1.16 | $0.80 | $(0.01 | ) | $0.62 | $2.38 | $1.33 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.29 | ) | $(0.54 | ) | $(0.18 | ) | $(0.29 | ) | $(0.27 | ) | |||||||||||||
From net realized gain on investments | — | (0.80 | ) | (0.59 | ) | (0.22 | ) | (1.11 | ) | (0.55 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.09 | ) | $(1.13 | ) | $(0.40 | ) | $(1.40 | ) | $(0.82 | ) | |||||||||||||
Net asset value, end of period (x) | $12.14 | $10.98 | $11.27 | $12.41 | $12.19 | $11.21 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 10.56 | (n) | 6.94 | (c) | 0.30 | 5.04 | 22.38 | 12.40 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.28 | (a) | 0.28 | (c) | 0.27 | 0.28 | 0.28 | 0.43 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.28 | 0.28 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.28 | )(a) | 1.50 | (c) | 1.40 | 1.00 | 0.71 | 1.59 | ||||||||||||||||
Portfolio turnover | 1 | (n) | 1 | 1 | 1 | 4 | 72 | |||||||||||||||||
Net assets at end of period (000 omitted) | $420,373 | $420,657 | $468,237 | $538,164 | $618,967 | $559,969 |
See Notes to Financial Statements
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Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(l) | Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by the underlying affiliated funds in which the fund invests and for interim net investment income ratios, the actual net investment income ratio may differ. The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w) | Per share amount was less than $0.01. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Growth Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in 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. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and that value may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov or at the SEC’s public reference room in Washington, D.C. The underlying funds’ shareholder reports are not covered by this report.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Investment Valuations – Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are
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generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued at valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $424,164,416 | $— | $— | $424,164,416 |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
Derivatives – The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
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Notes to Financial Statements (unaudited) – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on an accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $12,020,610 | |||
Long-term capital gains | 29,219,906 | |||
Total distributions | $41,240,516 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $339,318,682 | |||
Gross appreciation | 85,772,035 | |||
Gross depreciation | (926,301 | ) | ||
Net unrealized appreciation (depreciation) | $84,845,734 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 6,852,018 | |||
Undistributed long-term capital gain | 21,853,375 | |||
Net unrealized appreciation (depreciation) | 48,658,064 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to
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Notes to Financial Statements (unaudited) – continued
shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $87,692 | $— | $216,265 | ||||||||||||
Service Class | — | 10,896,208 | — | 30,040,351 | ||||||||||||
Total | $— | $10,983,900 | $— | $30,256,616 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles, such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which a fund invests. Accordingly, the expense ratio for each fund reflects only those fees and expenses borne directly by the fund.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $5,036, which equated to 0.0024% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $295.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0041% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $400 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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Notes to Financial Statements (unaudited) – continued
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of shares of underlying funds aggregated $3,853,780 and $47,160,154, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 41,563 | $480,141 | 30,929 | $342,169 | ||||||||||||
Service Class | 606,929 | 6,995,897 | 1,222,192 | 13,813,513 | ||||||||||||
648,492 | $7,476,038 | 1,253,121 | $14,155,682 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 27,285 | $303,957 | ||||||||||||
Service Class | — | — | 3,671,440 | 40,936,559 | ||||||||||||
— | $— | 3,698,725 | $41,240,516 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (8,244 | ) | $(95,731 | ) | (30,130 | ) | $(336,968 | ) | ||||||||
Service Class | (4,295,739 | ) | (50,090,362 | ) | (8,127,901 | ) | (91,021,184 | ) | ||||||||
(4,303,983 | ) | $(50,186,093 | ) | (8,158,031 | ) | $(91,358,152 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | 33,319 | $384,410 | 28,084 | $309,158 | ||||||||||||
Service Class | (3,688,810 | ) | (43,094,465 | ) | (3,234,269 | ) | (36,271,112 | ) | ||||||||
(3,655,491 | ) | $(42,710,055 | ) | (3,206,185 | ) | $(35,961,954 | ) |
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $1,504 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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Notes to Financial Statements (unaudited) – continued
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
Underlying Affiliated Funds | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Emerging Markets Equity Portfolio | 332,359 | 675 | (53,346 | ) | 279,688 | |||||||||||
MFS Global Governments Portfolio | 1,644,025 | 77,437 | (73,128 | ) | 1,648,334 | |||||||||||
MFS Global Real Estate Portfolio | 1,519,359 | 19,976 | (121,989 | ) | 1,417,346 | |||||||||||
MFS Growth Series | 1,198,827 | 1,805 | (182,016 | ) | 1,018,616 | |||||||||||
MFS High Yield Portfolio | 3,691,362 | 31,171 | (203,093 | ) | 3,519,440 | |||||||||||
MFS Inflation-Adjusted Bond Portfolio | 2,086,034 | 69,761 | (99,859 | ) | 2,055,936 | |||||||||||
MFS Institutional Money Market Portfolio | 416,288 | 10,296,286 | (10,573,314 | ) | 139,260 | |||||||||||
MFS International Growth Portfolio | 1,741,544 | 7,086 | (293,278 | ) | 1,455,352 | |||||||||||
MFS International Value Portfolio | 935,257 | 3,885 | (133,174 | ) | 805,968 | |||||||||||
MFS Limited Maturity Portfolio | 832,134 | 22,095 | (28,536 | ) | 825,693 | |||||||||||
MFS Mid Cap Growth Series | 4,796,751 | 1,088 | (624,157 | ) | 4,173,682 | |||||||||||
MFS Mid Cap Value Portfolio | 4,649,648 | 26,496 | (311,750 | ) | 4,364,394 | |||||||||||
MFS New Discovery Series | 526,593 | 1,812 | (56,119 | ) | 472,286 | |||||||||||
MFS New Discovery Value Portfolio | 799,029 | 10,036 | (48,328 | ) | 760,737 | |||||||||||
MFS Research International Portfolio | 2,822,484 | 20,004 | (424,659 | ) | 2,417,829 | |||||||||||
MFS Research Series | 1,635,509 | 2,904 | (175,773 | ) | 1,462,640 | |||||||||||
MFS Total Return Bond Series | 1,599,853 | 41,590 | (66,488 | ) | 1,574,955 | |||||||||||
MFS Value Series | 2,487,093 | 4,992 | (221,568 | ) | 2,270,517 | |||||||||||
Underlying Affiliated Funds | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Emerging Markets Equity Portfolio | $1,139 | $— | $— | $4,231,681 | ||||||||||||
MFS Global Governments Portfolio | (70,982 | ) | — | — | 16,961,360 | |||||||||||
MFS Global Real Estate Portfolio | 179,253 | — | — | 21,217,667 | ||||||||||||
MFS Growth Series | 2,396,749 | — | — | 46,296,110 | ||||||||||||
MFS High Yield Portfolio | (33,409 | ) | — | — | 21,257,420 | |||||||||||
MFS Inflation-Adjusted Bond Portfolio | (38,444 | ) | — | — | 21,237,820 | |||||||||||
MFS Institutional Money Market Portfolio | (215 | ) | — | 609 | 139,260 | |||||||||||
MFS International Growth Portfolio | 406,580 | — | — | 21,088,044 | ||||||||||||
MFS International Value Portfolio | 1,003,101 | — | — | 21,124,431 | ||||||||||||
MFS Limited Maturity Portfolio | 343 | — | — | 8,496,384 | ||||||||||||
MFS Mid Cap Growth Series | 1,013,317 | — | — | 38,147,449 | ||||||||||||
MFS Mid Cap Value Portfolio | 57,315 | — | — | 38,363,024 | ||||||||||||
MFS New Discovery Series | 28,549 | — | — | 8,482,257 | ||||||||||||
MFS New Discovery Value Portfolio | 56,388 | — | — | 8,527,864 | ||||||||||||
MFS Research International Portfolio | 688,965 | — | — | 38,056,631 | ||||||||||||
MFS Research Series | 620,043 | — | — | 42,504,311 | ||||||||||||
MFS Total Return Bond Series | (42,008 | ) | — | — | 21,214,649 | |||||||||||
MFS Value Series | 1,301,475 | — | — | 46,818,054 | ||||||||||||
$7,568,159 | $— | $609 | $424,164,416 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® INFLATION-ADJUSTED BOND PORTFOLIO
MFS® Variable Insurance Trust III
VIA-SEM
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MFS® INFLATION-ADJUSTED BOND PORTFOLIO
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
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LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure (i)
Fixed income sectors (i) | ||||
Non-U.S. Government Bonds | 54.7% | |||
U.S. Treasury Securities | 42.7% | |||
Emerging Markets Bonds | 0.9% | |||
Composition including fixed income credit quality (a)(i) | ||||
AAA | 4.9% | |||
AA | 31.8% | |||
A | 5.9% | |||
BBB | 13.0% | |||
U.S. Government | 42.7% | |||
Cash & Cash Equivalents | 1.7% | |||
Other | 0.0% | (o) |
Portfolio facts (i) | ||||
Average Duration (d) | 8.2 | |||
Average Effective Maturity (m) | 13.8 yrs. | |||
Issuer country weightings (i)(x) | ||||
United States | 44.4% | |||
United Kingdom | 24.2% | |||
Spain | 7.5% | |||
France | 6.8% | |||
Italy | 5.5% | |||
Japan | 5.0% | |||
Canada | 2.2% | |||
Australia | 1.1% | |||
Sweden | 1.0% | |||
Other Countries | 2.3% | |||
Currency exposure weightings (i)(y) | ||||
United States Dollar | 43.2% | |||
British Pound Sterling | 27.2% | |||
Euro | 21.2% | |||
Swedish Krona | 2.1% | |||
Canadian Dollar | 2.1% | |||
Japanese Yen | 1.4% | |||
Australian Dollar | 1.2% | |||
Mexican Peso | 0.9% | |||
New Zealand Dollar | 0.5% | |||
Other Currencies | 0.2% |
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
(d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. |
(i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
(m) | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
(o) | Less than 0.1%. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
(y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents and Other. |
Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
2
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.56% | $1,000.00 | $1,035.07 | $2.83 | |||||||||||||
Hypothetical (h) | 0.56% | $1,000.00 | $1,022.02 | $2.81 | ||||||||||||||
Service Class | Actual | 0.81% | $1,000.00 | $1,033.37 | $4.08 | |||||||||||||
Hypothetical (h) | 0.81% | $1,000.00 | $1,020.78 | $4.06 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
BONDS – 97.9% | ||||||||
Emerging Market Sovereign – 0.9% | ||||||||
United Mexican States, 4.5%, 12/04/2025 | MXN | 51,778,386 | $ | 3,151,652 | ||||
|
| |||||||
International Market Sovereign – 54.4% | ||||||||
Commonwealth of Australia, Inflation Linked Bond, 1.25%, 2/21/2022 | AUD | 1,196,100 | $ | 947,960 | ||||
Commonwealth of Australia, Inflation Linked Bond, 3%, 9/20/2025 | AUD | 835,030 | 755,574 | |||||
Commonwealth of Australia, Inflation Linked Bond, 2.5%, 9/20/2030 | AUD | 552,758 | 507,808 | |||||
Commonwealth of Australia, Inflation Linked Bond, 2%, 8/21/2035 | AUD | 1,671,830 | 1,475,534 | |||||
Federal Republic of Germany, Inflation Linked Bond, 0.1%, 4/15/2046 | EUR | 712,894 | 888,205 | |||||
Government of Canada, Inflation Linked Bond, 4.25%, 12/01/2021 | CAD | 588,638 | 535,765 | |||||
Government of Canada, Inflation Linked Bond, 4.25%, 12/01/2026 | CAD | 1,633,313 | 1,714,664 | |||||
Government of Canada, Inflation Linked Bond, 4%, 12/01/2031 | CAD | 899,035 | 1,031,783 | |||||
Government of Canada, Inflation Linked Bond, 3%, 12/01/2036 | CAD | 886,333 | 992,545 | |||||
Government of Canada, Inflation Linked Bond, 2%, 12/01/2041 | CAD | 1,302,670 | 1,325,533 | |||||
Government of Canada, Inflation Linked Bond, 1.5%, 12/01/2044 | CAD | 789,656 | 748,298 | |||||
Government of Canada, Inflation Linked Bond, 1.25%, 12/01/2047 | CAD | 951,948 | 870,811 | |||||
Government of Japan, Inflation Linked Bond, 1.3%, 9/10/2017 | JPY | 772,500,000 | 7,132,618 | |||||
Government of Japan, Inflation Linked Bond, 1.4%, 3/10/2018 | JPY | 204,400,000 | 1,916,335 | |||||
Government of Japan, Inflation Linked Bond, 0.1%, 3/10/2026 | JPY | 809,505,900 | 7,516,044 | |||||
Government of New Zealand, Inflation Linked Bond, 2%, 9/20/2025 | NZD | 3,361,600 | 2,498,672 | |||||
Kingdom of Denmark, Inflation Linked Bond, 0.1%, 11/15/2023 | DKK | 6,329,520 | 1,028,541 | |||||
Kingdom of Spain, Inflation Linked Bond, 0.55%, 11/30/2019 | EUR | 4,585,185 | 5,420,743 | |||||
Kingdom of Spain, Inflation Linked Bond, 0.3%, 11/30/2021 | EUR | 1,832,040 | 2,189,136 | |||||
Kingdom of Spain, Inflation Linked Bond, 1.8%, 11/30/2024 | EUR | 6,454,922 | 8,320,662 | |||||
Kingdom of Spain, Inflation Linked Bond, 0.65%, 11/30/2027 | EUR | 1,521,270 | 1,750,720 | |||||
Kingdom of Spain, Inflation Linked Bond, 1%, 11/30/2030 | EUR | 6,122,244 | 7,174,534 | |||||
Kingdom of Sweden, Inflation Linked Bond, 4%, 12/01/2020 | SEK | 13,119,271 | 1,876,352 | |||||
Kingdom of Sweden, Inflation Linked Bond, 3.5%, 12/01/2028 | SEK | 8,158,067 | 1,486,127 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
International Market Sovereign – continued | ||||||||
Republic of France, Inflation Linked Bond, 1.3%, 7/25/2019 | EUR | 1,457,352 | $ | 1,752,187 | ||||
Republic of France, Inflation Linked Bond, 2.25%, 7/25/2020 | EUR | 4,966,720 | 6,291,066 | |||||
Republic of France, Inflation Linked Bond, 1.1%, 7/25/2022 | EUR | 2,428,382 | 3,082,275 | |||||
Republic of France, Inflation Linked Bond, 2.1%, 7/25/2023 | EUR | 1,946,070 | 2,641,772 | |||||
Republic of France, Inflation Linked Bond, 0.25%, 7/25/2024 | EUR | 4,444,781 | 5,462,427 | |||||
Republic of France, Inflation Linked Bond, 3.15%, 7/25/2032 | EUR | 1,697,136 | 2,926,998 | |||||
Republic of France, Inflation Linked Bond, 0.1%, 7/25/2047 | EUR | 406,228 | 454,787 | |||||
Republic of Italy, 4.5%, 3/01/2024 | EUR | 2,500,000 | 3,401,202 | |||||
Republic of Italy, Inflation Linked Bond, 2.1%, 9/15/2021 | EUR | 3,307,320 | 4,123,764 | |||||
Republic of Italy, Inflation Linked Bond, 2.6%, 9/15/2023 | EUR | 3,136,671 | 4,055,688 | |||||
Republic of Italy, Inflation Linked Bond, 2.35%, 9/15/2024 | EUR | 204,520 | 259,290 | |||||
Republic of Italy, Inflation Linked Bond, 3.1%, 9/15/2026 | EUR | 3,285,920 | 4,426,934 | |||||
Republic of Italy, Inflation Linked Bond, 1.25%, 9/15/2032 | EUR | 304,935 | 338,550 | |||||
Republic of Italy, Inflation Linked Bond, 2.35%, 9/15/2035 | EUR | 1,216,430 | 1,587,688 | |||||
United Kingdom Treasury, 4.25%, 3/07/2036 | GBP | 1,000,000 | 1,810,845 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2029 | GBP | 1,940,365 | 3,121,733 | |||||
United Kingdom Treasury, Inflation Linked Bond, 4.125%, 7/22/2030 | GBP | 1,493,560 | 3,614,718 | |||||
United Kingdom Treasury, Inflation Linked Bond, 1.25%, 11/22/2032 | GBP | 1,925,951 | 3,780,641 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.75%, 3/22/2034 | GBP | 2,156,231 | 4,079,910 | |||||
United Kingdom Treasury, Inflation Linked Bond, 2%, 1/26/2035 | GBP | 2,277,244 | 5,137,002 | |||||
United Kingdom Treasury, Inflation Linked Bond, 1.125%, 11/22/2037 | GBP | 2,489,331 | 5,370,751 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.625%, 3/22/2040 | GBP | 2,828,931 | 5,926,988 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.625%, 11/22/2042 | GBP | 1,898,200 | 4,176,548 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2044 | GBP | 2,193,981 | 4,412,292 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2046 | GBP | 1,553,956 | 3,209,285 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.75%, 11/22/2047 | GBP | 1,984,103 | 4,853,428 |
4
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
International Market Sovereign – continued | ||||||||
United Kingdom Treasury, Inflation Linked Bond, 0.5%, 3/22/2050 | GBP | 2,057,296 | $ | 4,979,800 | ||||
United Kingdom Treasury, Inflation Linked Bond, 0.25%, 3/22/2052 | GBP | 1,671,769 | 3,946,245 | |||||
United Kingdom Treasury, Inflation Linked Bond, 1.25%, 11/22/2055 | GBP | 1,773,025 | 5,635,278 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2056 | GBP | 204,370 | 500,469 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2058 | GBP | 1,597,233 | 4,026,358 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.375%, 3/22/2062 | GBP | 1,777,849 | 5,173,677 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2065 | GBP | 732,714 | 2,107,106 | |||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2068 | GBP | 1,663,909 | 5,037,190 | |||||
|
| |||||||
$ | 181,809,856 | |||||||
|
| |||||||
U.S. Treasury Inflation Protected Securities – 42.6% | ||||||||
U.S. Treasury Bonds, 0.125%, 4/15/2020 | $ | 6,787,495 | $ | 6,797,941 | ||||
U.S. Treasury Bonds, 1.125%, 1/15/2021 | 3,741,511 | 3,885,189 | ||||||
U.S. Treasury Bonds, 0.375%, 7/15/2023 | 4,548,870 | 4,578,165 | ||||||
U.S. Treasury Bonds, 0.625%, 1/15/2024 | 7,998,565 | 8,112,505 | ||||||
U.S. Treasury Bonds, 0.125%, 7/15/2024 | 4,233,796 | 4,158,718 | ||||||
U.S. Treasury Bonds, 0.25%, 1/15/2025 | 6,645,816 | 6,527,787 | ||||||
U.S. Treasury Bonds, 2.375%, 1/15/2025 | 6,970,393 | 7,940,895 | ||||||
U.S. Treasury Bonds, 0.375%, 7/15/2025 | 4,112,346 | 4,081,450 | ||||||
U.S. Treasury Bonds, 0.625%, 1/15/2026 | 7,101,135 | 7,146,057 | ||||||
U.S. Treasury Bonds, 2%, 1/15/2026 | 1,391,007 | 1,558,775 | ||||||
U.S. Treasury Bonds, 2.375%, 1/15/2027 | 2,537,972 | 2,946,499 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
U.S. Treasury Inflation Protected Securities – continued | ||||||||
U.S. Treasury Bonds, 1.75%, 1/15/2028 | $ | 3,324,356 | $ | 3,705,371 | ||||
U.S. Treasury Bonds, 3.625%, 4/15/2028 | 2,512,811 | 3,282,603 | ||||||
U.S. Treasury Bonds, 2.5%, 1/15/2029 | 3,234,675 | 3,888,988 | ||||||
U.S. Treasury Bonds, 3.875%, 4/15/2029 | 4,212,628 | 5,719,031 | ||||||
U.S. Treasury Bonds, 3.375%, 4/15/2032 | 688,840 | 946,366 | ||||||
U.S. Treasury Bonds, 2.125%, 2/15/2040 | 3,221,067 | 4,006,054 | ||||||
U.S. Treasury Bonds, 2.125%, 2/15/2041 | 3,201,464 | 3,999,833 | ||||||
U.S. Treasury Bonds, 0.75%, 2/15/2042 | 3,497,703 | 3,327,844 | ||||||
U.S. Treasury Bonds, 0.625%, 2/15/2043 | 3,626,944 | 3,336,440 | ||||||
U.S. Treasury Bonds, 1.375%, 2/15/2044 | 2,566,466 | 2,791,768 | ||||||
U.S. Treasury Bonds, 0.75%, 2/15/2045 | 2,718,688 | 2,549,643 | ||||||
U.S. Treasury Bonds, 1%, 2/15/2046 | 3,367,579 | 3,364,558 | ||||||
U.S. Treasury Notes, 0.125%, 4/15/2019 | 5,803,515 | 5,806,138 | ||||||
U.S. Treasury Notes, 1.875%, 7/15/2019 | 2,290,560 | 2,387,350 | ||||||
U.S. Treasury Notes, 1.375%, 1/15/2020 | 2,000,438 | 2,073,322 | ||||||
U.S. Treasury Notes, 1.25%, 7/15/2020 | 3,472,635 | 3,620,205 | ||||||
U.S. Treasury Notes, 0.125%, 4/15/2021 | 4,590,345 | 4,583,354 | ||||||
U.S. Treasury Notes, 0.625%, 7/15/2021 | 5,308,807 | 5,440,742 | ||||||
U.S. Treasury Notes, 0.125%, 1/15/2022 | 4,911,589 | 4,904,242 | ||||||
U.S. Treasury Notes, 0.125%, 7/15/2022 | 5,283,935 | 5,277,193 | ||||||
U.S. Treasury Notes, 0.125%, 1/15/2023 | 6,184,894 | 6,128,345 | ||||||
U.S. Treasury Notes, 0.125%, 7/15/2026 | 3,446,168 | 3,324,057 | ||||||
|
| |||||||
$ | 142,197,428 | |||||||
|
| |||||||
Total Bonds (Identified Cost, $313,437,749) | $ | 327,158,936 | ||||||
|
| |||||||
MONEY MARKET FUNDS – 2.3% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $7,582,530) | 7,582,961 | $ | 7,582,961 | |||||
|
| |||||||
Total Investments (Identified Cost, $321,020,279) | $ | 334,741,897 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.2)% | (676,504 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 334,065,393 | ||||||
|
|
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
AUD | Australian Dollar |
CAD | Canadian Dollar |
CNH | Chinese Yuan Renminbi (Offshore) |
DKK | Danish Krone |
EUR | Euro |
GBP | British Pound |
JPY | Japanese Yen |
MXN | Mexican Peso |
NZD | New Zealand Dollar |
SEK | Swedish Krona |
5
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments (unaudited) – continued
Derivative Contracts at 6/30/17
Forward Foreign Currency Exchange Contracts at 6/30/17
Type | Currency | Counterparty | Contracts to Deliver/Receive | Settlement Date Range | In Exchange For | Contracts at Value | Unrealized (Depreciation) | |||||||||||||||||
Asset Derivatives | ||||||||||||||||||||||||
BUY | AUD | Deutsche Bank AG | 2,224,000 | 8/10/17 | $ | 1,683,030 | $ | 1,708,571 | $ | 25,541 | ||||||||||||||
BUY | AUD | JPMorgan Chase Bank N.A. | 7,014,868 | 8/10/17 | 5,292,323 | 5,389,117 | 96,794 | |||||||||||||||||
BUY | CAD | Deutsche Bank AG | 2,469,000 | 8/10/17 | 1,866,763 | 1,905,146 | 38,383 | |||||||||||||||||
BUY | CAD | JPMorgan Chase Bank N.A. | 5,905,857 | 8/10/17 | 4,452,855 | 4,557,117 | 104,262 | |||||||||||||||||
BUY | CAD | Morgan Stanley Capital Services, Inc. | 2,669,559 | 8/10/17 | 2,022,695 | 2,059,903 | 37,208 | |||||||||||||||||
BUY | CNH | JPMorgan Chase Bank N.A. | 11,888,000 | 1/05/18 | 1,661,955 | 1,731,014 | 69,059 | |||||||||||||||||
BUY | EUR | Deutsche Bank AG | 1,508,000 | 8/10/17 | 1,693,369 | 1,725,539 | 32,170 | |||||||||||||||||
BUY | EUR | Goldman Sachs International | 10,710,810 | 8/10/17 | 12,123,084 | 12,255,912 | 132,828 | |||||||||||||||||
BUY | GBP | JPMorgan Chase Bank N.A. | 586,973 | 8/10/17 | 745,068 | 765,366 | 20,298 | |||||||||||||||||
BUY | GBP | Merrill Lynch International | 11,135,759 | 8/10/17 | 14,376,543 | 14,520,153 | 143,610 | |||||||||||||||||
SELL | JPY | Goldman Sachs International | 707,173,986 | 8/10/17 | 6,480,617 | 6,296,847 | 183,770 | |||||||||||||||||
SELL | JPY | JPMorgan Chase Bank N.A. | 746,826,000 | 8/10/17 | 6,723,183 | 6,649,918 | 73,265 | |||||||||||||||||
SELL | MXN | Goldman Sachs International | 37,952,251 | 8/10/17 | 2,095,624 | 2,079,282 | 16,342 | |||||||||||||||||
BUY | NZD | JPMorgan Chase Bank N.A. | 8,345,218 | 8/10/17 | 5,999,105 | 6,111,524 | 112,419 | |||||||||||||||||
BUY | SEK | Brown Brothers Harriman | 29,219,000 | 8/10/17 | 3,367,570 | 3,475,183 | 107,613 | |||||||||||||||||
BUY | SEK | JPMorgan Chase Bank N.A. | 5,711,832 | 8/10/17 | 654,889 | 679,341 | 24,452 | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 1,218,014 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Liability Derivatives | ||||||||||||||||||||||||
SELL | AUD | JPMorgan Chase Bank N.A. | 8,856,445 | 8/10/17 | $ | 6,690,158 | $ | 6,803,893 | $ | (113,735 | ) | |||||||||||||
SELL | CAD | Merrill Lynch International | 11,547,805 | 8/10/17 | 8,576,610 | 8,910,594 | (333,984 | ) | ||||||||||||||||
SELL | CNH | JPMorgan Chase Bank N.A. | 11,888,000 | 1/05/18 | 1,667,438 | 1,731,014 | (63,576 | ) | ||||||||||||||||
SELL | DKK | Goldman Sachs International | 1,406,894 | 8/10/17 | 213,063 | 216,519 | (3,456 | ) | ||||||||||||||||
BUY | EUR | Citibank N.A. | 2,946,000 | 8/10/17 | 3,377,925 | 3,370,979 | (6,946 | ) | ||||||||||||||||
SELL | EUR | BNP Paribas S.A. | 1,505,000 | 8/10/17 | 1,681,881 | 1,722,106 | (40,225 | ) | ||||||||||||||||
SELL | EUR | Goldman Sachs International | 4,471,475 | 8/10/17 | 5,011,092 | 5,116,513 | (105,421 | ) | ||||||||||||||||
SELL | EUR | JPMorgan Chase Bank N.A. | 5,897,629 | 8/10/17 | 6,608,229 | 6,748,399 | (140,170 | ) | ||||||||||||||||
SELL | GBP | Brown Brothers Harriman | 1,306,000 | 8/10/17 | 1,664,722 | 1,702,921 | (38,199 | ) | ||||||||||||||||
SELL | GBP | Deutsche Bank AG | 1,508,000 | 8/10/17 | 1,956,663 | 1,966,313 | (9,650 | ) | ||||||||||||||||
SELL | GBP | JPMorgan Chase Bank N.A. | 1,463,000 | 8/10/17 | 1,867,074 | 1,907,637 | (40,563 | ) | ||||||||||||||||
BUY | JPY | Deutsche Bank AG | 149,529,000 | 8/10/17 | 1,369,338 | 1,331,442 | (37,896 | ) | ||||||||||||||||
SELL | JPY | JPMorgan Chase Bank N.A. | 37,646,000 | 8/10/17 | 334,931 | 335,209 | (278 | ) | ||||||||||||||||
BUY | MXN | JPMorgan Chase Bank N.A. | 38,001,000 | 8/10/17 | 2,101,995 | 2,081,952 | (20,043 | ) | ||||||||||||||||
SELL | NZD | Deutsche Bank AG | 7,231,000 | 8/10/17 | 5,207,627 | 5,295,540 | (87,913 | ) | ||||||||||||||||
SELL | NZD | JPMorgan Chase Bank N.A. | 2,324,000 | 8/10/17 | 1,672,403 | 1,701,955 | (29,552 | ) | ||||||||||||||||
SELL | SEK | Goldman Sachs International | 5,077,841 | 8/10/17 | 588,437 | 603,937 | (15,500 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | (1,087,107 | ) | ||||||||||||||||||||||
|
|
At June 30, 2017, the fund had $350,000 cash collateral to cover any commitments under these derivative contracts. Cash collateral is comprised of “Restricted cash” in the Statement of Assets and Liabilities.
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $313,437,749) | $327,158,936 | |||
Underlying affiliated funds, at value (identified cost, $7,582,530) | 7,582,961 | |||
Total investments, at value (identified cost, $321,020,279) | $334,741,897 | |||
Restricted cash | 350,000 | |||
Receivables for | ||||
Forward foreign currency exchange contracts | 1,218,014 | |||
Interest | 1,317,358 | |||
Other assets | 1,384 | |||
Total assets | $337,628,653 | |||
Liabilities | ||||
Payables for | ||||
Forward foreign currency exchange contracts | $1,087,107 | |||
Investments purchased | 2,168,625 | |||
Fund shares reacquired | 232,172 | |||
Payable to affiliates | ||||
Investment adviser | 9,377 | |||
Shareholder servicing costs | 35 | |||
Distribution and/or service fees | 2,293 | |||
Payable for independent Trustees’ compensation | 288 | |||
Accrued expenses and other liabilities | 63,363 | |||
Total liabilities | $3,563,260 | |||
Net assets | $334,065,393 | |||
Net assets consist of | ||||
Paid-in capital | $323,835,153 | |||
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 13,885,297 | |||
Accumulated net realized gain (loss) on investments and foreign currency | (5,669,261 | ) | ||
Undistributed net investment income | 2,014,204 | |||
Net assets | $334,065,393 | |||
Shares of beneficial interest outstanding | 32,520,084 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $166,986,763 | 16,168,343 | $10.33 | |||||||||
Service Class | 167,078,630 | 16,351,741 | 10.22 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 |
| |||
Net investment income |
| |||
Income | ||||
Interest | $3,502,945 | |||
Dividends from underlying affiliated funds | 21,169 | |||
Total investment income | $3,524,114 | |||
Expenses | ||||
Management fee | $839,327 | |||
Distribution and/or service fees | 211,026 | |||
Shareholder servicing costs | 3,620 | |||
Administrative services fee | 31,821 | |||
Independent Trustees’ compensation | 4,601 | |||
Custodian fee | 20,596 | |||
Shareholder communications | 14,962 | |||
Audit and tax fees | 20,875 | |||
Legal fees | 1,866 | |||
Miscellaneous | 7,849 | |||
Total expenses | $1,156,543 | |||
Reduction of expenses by investment adviser | (12,883 | ) | ||
Net expenses | $1,143,660 | |||
Net investment income | $2,380,454 | |||
Realized and unrealized gain (loss) on investments and foreign currency | ||||
Realized gain (loss) (identified cost basis) | ||||
Investments: | ||||
Non-affiliated issuers | $(389,035 | ) | ||
Underlying affiliated funds | (214 | ) | ||
Foreign currency | 246,905 | |||
Net realized gain (loss) on investments and foreign currency | $(142,344 | ) | ||
Change in unrealized appreciation (depreciation) | ||||
Investments | $9,115,859 | |||
Translation of assets and liabilities in foreign currencies | (5,049 | ) | ||
Net unrealized gain (loss) on investments and foreign currency translation | $9,110,810 | |||
Net realized and unrealized gain (loss) on investments and foreign currency | $8,968,466 | |||
Change in net assets from operations | $11,348,920 |
See Notes to Financial Statements
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MFS Inflation-Adjusted Bond Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| Six months ended 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income | $2,380,454 | $1,846,895 | ||||||
Net realized gain (loss) on investments and foreign currency | (142,344 | ) | (9,640,570 | ) | ||||
Net unrealized gain (loss) on investments and foreign currency translation | 9,110,810 | 17,862,614 | ||||||
Change in net assets from operations | $11,348,920 | $10,068,939 | ||||||
Change in net assets from fund share transactions | $(15,217,593 | ) | $(33,733,905 | ) | ||||
Total change in net assets | $(3,868,673 | ) | $(23,664,966 | ) | ||||
Net assets | ||||||||
At beginning of period | 337,934,066 | 361,599,032 | ||||||
At end of period (including undistributed net investment income of $2,014,204 and | $334,065,393 | $337,934,066 |
See Notes to Financial Statements
9
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MFS Inflation-Adjusted Bond Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $9.98 | $9.73 | $10.32 | $10.04 | $11.29 | $11.34 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.08 | $0.07 | (c) | $(0.01 | ) | $0.08 | $0.02 | $0.10 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.27 | 0.18 | (0.51 | ) | 0.29 | (0.61 | ) | 0.76 | ||||||||||||||||
Total from investment operations | $0.35 | $0.25 | $(0.52 | ) | $0.37 | $(0.59 | ) | $0.86 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $— | $(0.07 | ) | $(0.09 | ) | $— | $(0.10 | ) | |||||||||||||||
From net realized gain on investments | — | — | — | — | (0.66 | ) | (0.81 | ) | ||||||||||||||||
Total distributions declared to shareholders | $— | $— | $(0.07 | ) | $(0.09 | ) | $(0.66 | ) | $(0.91 | ) | ||||||||||||||
Net asset value, end of period (x) | $10.33 | $9.98 | $9.73 | $10.32 | $10.04 | $11.29 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.51 | (n) | 2.57 | (c) | (5.04 | ) | 3.71 | (5.07 | ) | 7.74 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.56 | (a) | 0.55 | (c) | 0.56 | 0.55 | 0.56 | 0.65 | ||||||||||||||||
Expenses after expense reductions (f) | 0.56 | (a) | 0.54 | (c) | 0.55 | 0.54 | 0.56 | N/A | ||||||||||||||||
Net investment income (loss) | 1.54 | (a)(l) | 0.65 | (c) | (0.11 | ) | 0.72 | 0.22 | 0.87 | |||||||||||||||
Portfolio turnover | 24 | (n) | 47 | 44 | 24 | 51 | 520 | |||||||||||||||||
Net assets at end of period (000 omitted) | $166,987 | $168,857 | $184,691 | $214,183 | $230,805 | $227,553 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $9.89 | $9.66 | $10.24 | $9.96 | $11.23 | $11.31 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.06 | $0.04 | (c) | $(0.04 | ) | $0.05 | $(0.00 | )(w) | $0.07 | |||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.27 | 0.19 | (0.50 | ) | 0.29 | (0.61 | ) | 0.75 | ||||||||||||||||
Total from investment operations | $0.33 | $0.23 | $(0.54 | ) | $0.34 | $(0.61 | ) | $0.82 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $— | $(0.04 | ) | $(0.06 | ) | $— | $(0.09 | ) | |||||||||||||||
From net realized gain on investments | — | — | — | — | (0.66 | ) | (0.81 | ) | ||||||||||||||||
Total distributions declared to shareholders | $— | $— | $(0.04 | ) | $(0.06 | ) | $(0.66 | ) | $(0.90 | ) | ||||||||||||||
Net asset value, end of period (x) | $10.22 | $9.89 | $9.66 | $10.24 | $9.96 | $11.23 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.34 | (n) | 2.38 | (c) | (5.27 | ) | 3.43 | (5.28 | ) | 7.42 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.81 | (a) | 0.80 | (c) | 0.81 | 0.80 | 0.81 | 0.90 | ||||||||||||||||
Expenses after expense reductions (f) | 0.81 | (a) | 0.79 | (c) | 0.80 | 0.79 | 0.81 | N/A | ||||||||||||||||
Net investment income (loss) | 1.30 | (a)(l) | 0.40 | (c) | (0.37 | ) | 0.46 | (0.00 | )(w) | 0.61 | ||||||||||||||
Portfolio turnover | 24 | (n) | 47 | 44 | 24 | 51 | 520 | |||||||||||||||||
Net assets at end of period (000 omitted) | $167,079 | $169,077 | $176,909 | $217,249 | $248,127 | $303,846 |
See Notes to Financial Statements
10
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MFS Inflation-Adjusted Bond Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(l) | Recognition of net investment income by the fund may be affected by inflation/deflation adjustments through period end and the actual annual net investment income ratio may differ. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w) | Per share amount was less than $0.01 and total return or ratio was less than 0.01%, as applicable. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
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MFS Inflation-Adjusted Bond Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Inflation-Adjusted Bond Portfolio (the fund) is a non-diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short- term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and
12
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MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements (unaudited) – continued
at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. Treasury Bonds & U.S. Government Agency & Equivalents | $— | $142,197,428 | $— | $142,197,428 | ||||||||||||
Non-U.S. Sovereign Debt | — | 184,961,508 | — | 184,961,508 | ||||||||||||
Mutual Funds | 7,582,961 | — | — | 7,582,961 | ||||||||||||
Total Investments | $7,582,961 | $327,158,936 | $— | $334,741,897 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Forward Foreign Currency Exchange Contracts – Assets | $— | $1,218,014 | $— | $1,218,014 | ||||||||||||
Forward Foreign Currency Exchange Contracts – Liabilities | — | (1,087,107 | ) | — | (1,087,107 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Inflation-Adjusted Debt Securities – The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The fund also invests in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund were forward foreign currency exchange contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2017 as reported in the Statement of Assets and Liabilities:
Fair Value | ||||||||||
Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives | |||||||
Foreign Exchange | Forward Foreign Currency Exchange | $1,218,014 | $(1,087,107 | ) |
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MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2017 as reported in the Statement of Operations:
Risk | Foreign Currency | |||
Foreign Exchange | $263,987 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2017 as reported in the Statement of Operations:
Risk | Translation of Assets and Liabilities in Foreign Currencies | |||
Foreign Exchange | $(52,532 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. Margin requirements are set by the clearing broker and the clearing house for cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options) while collateral terms are contract specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options). For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as “Restricted cash” or “Deposits with brokers.” Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on foreign currency.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally
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MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements (unaudited) – continued
accepted accounting principles. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward based on the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to net operating losses, wash sale loss deferrals, and derivative transactions.
The fund declared no distributions for the current period or for the year ended December 31, 2016.
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $322,291,554 | |||
Gross appreciation | 16,952,138 | |||
Gross depreciation | (4,501,795 | ) | ||
Net unrealized appreciation (depreciation) | $12,450,343 | |||
As of 12/31/16 | ||||
Capital loss carryforwards | (4,358,049 | ) | ||
Other temporary differences | (95,336 | ) | ||
Net unrealized appreciation (depreciation) | 3,334,705 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2016, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
Short-Term | $(4,358,049 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses.
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.50% of the fund’s average daily net assets.
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Notes to Financial Statements (unaudited) – continued
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $12,883, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.49% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $3,299, which equated to 0.0020% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $321.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0190% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $316 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017 purchases and sales of investments, other than short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $37,387,121 | $42,676,750 | ||||||
Investments (non-U.S. Government securities) | $43,933,956 | $56,980,782 |
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 104,881 | $1,059,267 | 257,954 | $2,594,615 | ||||||||||||
Service Class | 651,209 | 6,455,355 | 1,856,045 | 18,332,975 | ||||||||||||
756,090 | $7,514,622 | 2,113,999 | $20,927,590 |
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Notes to Financial Statements (unaudited) – continued
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (848,357 | ) | $(8,669,138 | ) | (2,327,493 | ) | $(23,708,840 | ) | ||||||||
Service Class | (1,394,793 | ) | (14,063,077 | ) | (3,069,800 | ) | (30,952,655 | ) | ||||||||
(2,243,150 | ) | $(22,732,215 | ) | (5,397,293 | ) | $(54,661,495 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (743,476 | ) | $(7,609,871 | ) | (2,069,539 | ) | $(21,114,225 | ) | ||||||||
Service Class | (743,584 | ) | (7,607,722 | ) | (1,213,755 | ) | (12,619,680 | ) | ||||||||
(1,487,060 | ) | $(15,217,593 | ) | (3,283,294 | ) | $(33,733,905 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 26%, 18%, and 6%, respectively, of the value of outstanding voting shares of the fund.
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $1,178 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 2,064,011 | 66,934,738 | (61,415,788 | ) | 7,582,961 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $(214 | ) | $— | $21,169 | $7,582,961 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® LIMITED MATURITY PORTFOLIO
MFS® Variable Insurance Trust III
VLT-SEM
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MFS® LIMITED MATURITY PORTFOLIO
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
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LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure (i)
Fixed income sectors (i) | ||||
Investment Grade Corporates | 60.3% | |||
U.S. Treasury Securities | 12.1% | |||
Asset-Backed Securities | 10.7% | |||
Collateralized Debt Obligations | 9.7% | |||
Non-U.S. Government Bonds | 4.2% | |||
Emerging Markets Bonds | 3.1% | |||
Mortgage-Backed Securities | 2.2% | |||
U.S. Government Agencies | 1.0% | |||
Commercial Mortgage-Backed Securities | 1.0% | |||
Residential Mortgage-Backed Securities | 0.9% | |||
High Yield Corporates | 0.5% |
Composition including fixed income credit quality (a)(i) | ||||
AAA | 10.8% | |||
AA | 18.2% | |||
A | 27.0% | |||
BBB | 33.8% | |||
BB | 0.5% | |||
U.S. Government | 4.8% | |||
Federal Agencies | 3.2% | |||
Not Rated | 7.4% | |||
Cash & Cash Equivalents | 1.6% | |||
Other | (7.3)% | |||
Portfolio facts (i) | ||||
Average Duration (d) | 1.9 | |||
Average Effective Maturity (m) | 2.8 yrs. | |||
Issuer country weightings (i)(x) | ||||
United States | 71.0% | |||
United Kingdom | 4.4% | |||
Canada | 3.9% | |||
France | 3.2% | |||
Netherlands | 2.9% | |||
Japan | 2.5% | |||
Switzerland | 2.4% | |||
Sweden | 2.3% | |||
Australia | 1.7% | |||
Other Countries | 5.7% |
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities, including fixed income futures contracts, which have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
(d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value due to the interest rate move. |
(i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
(m) | In determining an instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put, pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
Where the fund holds convertible bonds, these are treated as part of the equity portion of the portfolio.
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Portfolio Composition – continued
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.45% | $1,000.00 | $1,011.80 | $2.24 | |||||||||||||
Hypothetical (h) | 0.45% | $1,000.00 | $1,022.56 | $2.26 | ||||||||||||||
Service Class | Actual | 0.70% | $1,000.00 | $1,010.83 | $3.49 | |||||||||||||
Hypothetical (h) | 0.70% | $1,000.00 | $1,021.32 | $3.51 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
BONDS – 97.8% | ||||||||
Asset-Backed & Securitized – 22.2% | ||||||||
A Voce CLO Ltd., 2014-1A, “A2R”, FRN, 2.708%, 7/15/2026 (n) | $ | 1,735,000 | $ | 1,734,919 | ||||
A Voce CLO Ltd., 2014-1A, “BR”, FRN, 3.308%, 7/15/2026 (n) | 2,276,000 | 2,278,917 | ||||||
AIMCO Properties CLO LP, 2014-AA, “B1R”, FRN, 2.681%, 7/20/2026 (n) | 1,715,000 | 1,714,065 | ||||||
AIMCO Properties CLO LP, 2014-AA, “B2R”, 3.49%, 7/20/2026 (n) | 545,000 | 547,120 | ||||||
AmeriCredit Automobile Receivables Trust, 2016-3, “A2A”, 1.37%, 11/08/2019 | 1,037,128 | 1,036,602 | ||||||
Americredit Automobile Receivables Trust, 2017-2, “C”, 2.97%, 3/20/2023 | 1,837,000 | 1,842,228 | ||||||
Ares CLO Ltd., 2013-3A, “B1R”, FRN, 2.658%, 10/17/2024 (z) | 2,162,000 | 2,161,989 | ||||||
ARI Fleet Lease Trust, 2016-A, “A2”, 1.82%, 7/15/2024 (n) | 1,356,546 | 1,357,695 | ||||||
Atrium CDO Corp., 2010-A, “B1R”, FRN, 2.536%, 7/16/2025 (z) | 2,575,000 | 2,578,183 | ||||||
Atrium CDO Corp., 2011-A, “BR”, FRN, 2.653%, 10/23/2025 (n) | 1,735,000 | 1,735,370 | ||||||
Avery Point CLO Ltd., 2014-1A, “CR”, FRN, 3.505%, 4/25/2026 (n) | 1,720,000 | 1,720,205 | ||||||
Babson CLO Ltd., 2013-IIA, “A2R”, FRN, 2.708%, 1/18/2025 (n) | 1,488,327 | 1,490,628 | ||||||
Babson CLO Ltd., 2013-IIA, “BR”, FRN, 2.658%, 10/17/2026 (z) | 2,609,000 | 2,609,126 | ||||||
Babson CLO Ltd., 2013-IIA, “BR”, FRN, 3.408%, 1/18/2025 (n) | 1,488,327 | 1,491,734 | ||||||
Ballyrock Ltd., 2014-1A, “A2R”, FRN, 2.856%, 10/20/2026 (n) | 1,724,000 | 1,724,155 | ||||||
Ballyrock Ltd., 2014-1A, “BR”, FRN, 3.256%, 10/20/2026 (n) | 730,000 | 729,993 | ||||||
Capital One Multi-Asset Execution Trust, 2016-A4, “A4”, 1.33%, 6/15/2022 | 4,180,000 | 4,144,505 | ||||||
CD Commercial Mortgage Trust, 2017-CD4, “XA”, 1.33%, 5/10/2050 (i) | 17,752,161 | 1,658,868 | ||||||
Cent CLO LP, 2014-21A, “A2AR”, FRN, 2.87%, 7/27/2026 (n) | 1,060,053 | 1,059,966 | ||||||
Cent CLO LP, 2014-21A, “BR”, FRN, 3.57%, 7/27/2026 (n) | 1,439,531 | 1,437,090 | ||||||
Chesapeake Funding II LLC, 2016-1A, “A2”, FRN, 2.308%, 3/15/2028 (n) | 1,487,943 | 1,499,398 | ||||||
Chesapeake Funding II LLC, 2017-2A, “B”, 2.81%, 5/15/2029 (z) | 1,200,000 | 1,198,122 | ||||||
Chesapeake Funding II LLC, 2017-2A, “C”, 3.01%, 5/15/2029 (z) | 536,000 | 535,036 | ||||||
Chrysler Capital Auto Receivables Trust 2016-A, 1.47%, 4/15/2019 (n) | 433,389 | 433,422 | ||||||
Chrysler Capital Auto Receivables Trust 2016-B, “A2”, 1.36%, 1/15/2020 (n) | 1,125,297 | 1,123,947 | ||||||
Colony Starwood Homes, 2016-2A, “A”, FRN, 2.459%, 12/17/2033 (n) | 2,524,213 | 2,545,696 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued | ||||||||
CPS Auto Trust, 2016-D, “B”, 2.11%, 3/15/2021 (n) | $ | 2,062,000 | $ | 2,054,421 | ||||
Credit Acceptance Auto Loan Trust, 2015-2A, “A”, 2.4%, 2/15/2023 (n) | 2,683,000 | 2,693,007 | ||||||
Credit Acceptance Auto Loan Trust, 2016-2A, “A”, 2.42%, 11/15/2023 (n) | 1,610,000 | 1,615,712 | ||||||
Credit Acceptance Auto Loan Trust, 2016-3A, “A”, 2.15%, 4/15/2024 (n) | 2,525,000 | 2,519,743 | ||||||
Credit Acceptance Auto Loan Trust, 2017-2A, “B”, 3.02%, 4/15/2026 (z) | 2,607,000 | 2,606,188 | ||||||
Credit Suisse Commercial Mortgage Trust, “A4”, FRN, 6.253%, 9/15/2039 | 142,079 | 141,917 | ||||||
Drive Auto Receivables Trust, 2016-CA, “A3”, 1.67%, 11/15/2019 (n) | 2,310,000 | 2,310,006 | ||||||
Drive Auto Receivables Trust, 2017-1, “B”, 2.36%, 3/15/2021 | 846,000 | 845,557 | ||||||
Dryden Senior Loan Fund, 2014-31A, “CR”, FRN, 3.258%, 4/18/2026 (z) | 790,000 | 788,001 | ||||||
Dryden Senior Loan Fund, 2014-34A, “BR”, FRN, 2.708%, 10/15/2026 (n) | 1,064,000 | 1,062,931 | ||||||
Dryden Senior Loan Fund, 2014-34A, “CR”, FRN, 3.308%, 10/15/2026 (n) | 1,364,684 | 1,376,213 | ||||||
DT Auto Owner Trust, 2016-2A, “A”, 1.73%, 8/15/2019 (n) | 192,739 | 192,745 | ||||||
DT Auto Owner Trust, 2017-2A, “C”, 3.03%, 1/17/2023 (n) | 2,017,000 | 2,018,275 | ||||||
Eaton Vance CLO Ltd, 2014-1A, “BR”, FRN, 2.758%, 7/15/2026 (n) | 1,284,737 | 1,284,729 | ||||||
Eaton Vance CLO Ltd., 2014-1A, “CR”, FRN, 3.408%, 7/15/2026 (n) | 2,569,474 | 2,569,453 | ||||||
Enterprise Fleet Financing LLC, 1.74%, 2/22/2022 (n) | 1,384,133 | 1,382,727 | ||||||
Exeter Automobile Receivables Trust, 2015-2A, “A”, 1.54%, 11/15/2019 (n) | 130,694 | 130,644 | ||||||
Exeter Automobile Receivables Trust, 2016-1A, “A”, 2.35%, 7/15/2020 (n) | 290,835 | 291,231 | ||||||
Exeter Automobile Receivables Trust, 2016-3A, “A”, 1.84%, 11/16/2020 (n) | 1,811,760 | 1,807,533 | ||||||
Exeter Automobile Receivables Trust, 2017-1A, “A”, 1.96%, 3/15/2021 (n) | 933,905 | 932,192 | ||||||
Flagship Credit Auto Trust, 2016-1, “A”, 2.77%, 12/15/2020 (n) | 983,231 | 990,819 | ||||||
Ford Credit Auto Owner Trust, 2014-1,“A”, 2.26%, 11/15/2025 (n) | 1,104,000 | 1,114,131 | ||||||
Ford Credit Auto Owner Trust, 2014-2,“A”, 2.31%, 4/15/2026 (n) | 3,515,000 | 3,549,017 | ||||||
GM Financial Automobile Leasing Trust, 2015-3A, “A2”, 1.17%, 6/20/2018 | 337,668 | 337,599 | ||||||
GMF Floorplan Owner Revolving Trust, 2017-A1, “A”, 2.22%, 1/18/2022 (n) | 1,730,000 | 1,736,864 | ||||||
GO Financial Auto Securitization Trust, 2015-2, “A”, 3.27%, 11/15/2018 (n) | 66,173 | 66,182 |
5
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued | ||||||||
Goldentree Loan Opportunities Ltd., 2014-8A, “B1R”, FRN, 2.708%, 4/19/2026 (n) | $ | 2,784,114 | $ | 2,783,960 | ||||
Goldentree Loan Opportunities Ltd., 2014-8A, “CR”, FRN, 3.358%, 4/19/2026 (n) | 1,606,220 | 1,606,126 | ||||||
GS Mortgage Securities Trust, 2017-GS6, “XA”, 1.053%, 5/10/2050 (i) | 15,901,177 | 1,352,514 | ||||||
HarbourView CLO VII Ltd., “B1R”, FRN, 2.831%, 11/18/2026 (z) | 2,716,743 | 2,716,339 | ||||||
HarbourView CLO VII Ltd., 7A, “CR”, FRN, 3.561%, 11/18/2026 (n) | 1,759,743 | 1,760,352 | ||||||
Hertz Fleet Lease Funding LP, 2016-1, “A2”, 1.96%, 4/10/2030 (n) | 1,464,578 | 1,467,785 | ||||||
Hyundai Auto Receivables Trust 2015-C, “A2A”, 0.99%, 11/15/2018 | 239,956 | 239,787 | ||||||
Loomis, Sayles & Co., CLO, “A1”, FRN, 2.688%, 10/15/2027 (n) | 1,619,932 | 1,624,542 | ||||||
Madison Park Funding XIV Ltd., 2014-14A, “C1R”, FRN, 3.206%, 7/20/2026 (n) | 2,418,000 | 2,417,978 | ||||||
Magnetite XI Ltd., 2014-11A, “BR”, FRN, 3.258%, 1/18/2027 (z) | 1,204,000 | 1,203,990 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust, 2017-C33, “XA”, 1.611%, 5/15/2050 (i) | 17,606,210 | 1,679,266 | ||||||
Morgan Stanley Capital I Trust, 2017-H1, “XA”, 1.464%, 6/15/2050 (i) | 7,924,428 | 799,244 | ||||||
Motor PLC, 2015-1A, “A1”, FRN, 1.816%, 6/25/2022 (n) | 600,207 | 600,269 | ||||||
Mountain Hawk CLO Ltd., 2014-3A, “BR”, FRN, 2.958%, 4/18/2025 (z) | 3,468,000 | 3,467,976 | ||||||
Nationstar HECM Loan Trust, 2015-2A, “A”, 2.882%, 11/25/2025 (n) | 134,094 | 134,137 | ||||||
Nationstar HECM Loan Trust, 2016-2A, “A”, 2.239%, 6/25/2026 (z) | 365,161 | 369,280 | ||||||
Navient Student Loan Trust, 2016-3A, “A1”, FRN, 1.816%, 6/25/2065 (n) | 709,310 | 710,681 | ||||||
Nextgear Floorplan Master Owner Trust, 2015-1A, “A”, 1.8%, 7/15/2019 (n) | 3,702,000 | 3,702,285 | ||||||
Nextgear Floorplan Master Owner Trust, 2017-1A, “A2”, 2.54%, 4/18/2022 (z) | 1,378,000 | 1,382,121 | ||||||
Oaktree CLO Ltd., 2014-2A, “BR”, FRN, 3.706%, 10/20/2026 (z) | 1,752,000 | 1,753,741 | ||||||
OneMain Direct Auto Receivables Trust, 2016-1A, “A”, 2.04%, 1/15/2021 (z) | 468,036 | 468,558 | ||||||
Oscar U.S. Funding Trust, 2016-2A, “A”, 2.31%, 11/15/2019 (n) | 685,576 | 685,163 | ||||||
Oscar U.S. Funding Trust, 2017-1A, “A3”, 2.82%, 6/10/2021 (z) | 1,980,000 | 1,990,027 | ||||||
Santander Drive Auto Receivable Trust, 2016-2A, “A2”, 1.38%, 7/15/2019 | 224,472 | 224,434 | ||||||
Santander Drive Auto Receivables Trust, 2017-2, “C”, 2.79%, 8/15/2022 | 1,109,000 | 1,107,601 | ||||||
Securitized Term Auto Receivables Trust, 2016-1A, “A2A”, 1.284%, 11/26/2018 (n) | 892,641 | 891,593 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued | ||||||||
Shackelton CLO Ltd., 2013-4A, “CR”, FRN, 3.255%, 1/13/2025 (n) | $ | 880,000 | $ | 879,809 | ||||
Sierra Receivables Funding Co. LLC, 2015-1A, “A”, 2.4%, 3/22/2032 (n) | 806,541 | 806,914 | ||||||
Silver Spring CLO Ltd., 4.054%, 10/15/2026 (z) | 1,393,000 | 1,393,000 | ||||||
SPS Servicer Advance Receivables Trust, 2016-T1, “AT1”, 2.53%, 11/16/2048 (n) | 3,150,000 | 3,122,545 | ||||||
Student Loan Consolidation Center, “A”, FRN, 2.436%, 10/25/2027 (n) | 708,483 | 716,346 | ||||||
Sway Residential Trust, 2014-1, “A”, FRN, 2.509%, 1/17/2032 (n) | 34,214 | 34,214 | ||||||
Thacher Park CLO Ltd. 2014-1A. “CR”, FRN, 3.356%, 10/20/2026 (n) | 1,743,000 | 1,743,051 | ||||||
TICP CLO Ltd., FRN, 3.406%, 1/20/2027 (z) | 1,528,000 | 1,528,014 | ||||||
Tricon American Homes 2015-SFR1, Trust “1A”, FRN, 2.421%, 5/17/2032 (n) | 1,130,025 | 1,136,341 | ||||||
Tricon American Homes 2015-SFR1, Trust “1A”, FRN, 2.589%, 11/17/2033 (n) | 1,710,000 | 1,691,228 | ||||||
Verizon Owner Trust, 2016-1A, “A”, 1.42%, 1/20/2021 (n) | 3,077,000 | 3,061,778 | ||||||
Volvo Financial Equipment LLC, “A2”, 1.44%, 10/15/2018 (n) | 812,439 | 812,463 | ||||||
West CLO Ltd., 2013-1A, “A2BR”, 3.393%, 11/07/2025 (z) | 1,720,000 | 1,721,526 | ||||||
|
| |||||||
$ | 134,593,794 | |||||||
|
| |||||||
Automotive – 3.2% | ||||||||
Ford Motor Credit Co. LLC, 2.262%, 3/28/2019 | $ | 2,220,000 | $ | 2,226,052 | ||||
Ford Motor Credit Co. LLC, 2.021%, 5/03/2019 | 1,530,000 | 1,527,629 | ||||||
Ford Motor Credit Co. LLC, FRN, 2.095%, 1/09/2018 | 1,940,000 | 1,945,960 | ||||||
General Motors Financial Co., Inc., 2.65%, 4/13/2020 | 2,643,000 | 2,655,287 | ||||||
General Motors Financial Co., Inc., 3.15%, 6/30/2022 | 1,207,000 | 1,208,868 | ||||||
Hyundai Capital America, 2%, 3/19/2018 (n) | 2,863,000 | 2,864,927 | ||||||
Hyundai Capital America, 2.4%, 10/30/2018 (n) | 1,820,000 | 1,823,804 | ||||||
Toyota Motor Credit Corp., 1.7%, 2/19/2019 | 1,510,000 | 1,511,794 | ||||||
Toyota Motor Credit Corp., FRN, 1.548%, 1/17/2019 | 3,370,000 | 3,384,447 | ||||||
|
| |||||||
$ | 19,148,768 | |||||||
|
| |||||||
Broadcasting – 0.2% | ||||||||
SES Global Americas Holdings GP, 2.5%, 3/25/2019 (n) | $ | 1,141,000 | $ | 1,139,476 | ||||
|
| |||||||
Brokerage & Asset Managers – 0.4% | ||||||||
Intercontinental Exchange, Inc., 2.75%, 12/01/2020 | $ | 2,516,000 | $ | 2,563,306 | ||||
|
| |||||||
Building – 0.3% | ||||||||
Stanley Black & Decker, Inc., 1.622%, 11/17/2018 | $ | 1,780,000 | $ | 1,775,641 | ||||
|
|
6
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Business Services – 0.4% | ||||||||
Fidelity National Information Services, Inc., 2.85%, 10/15/2018 | $ | 800,000 | $ | 809,438 | ||||
Fidelity National Information Services, Inc., 2.25%, 8/15/2021 | 1,810,000 | 1,790,521 | ||||||
|
| |||||||
$ | 2,599,959 | |||||||
|
| |||||||
Cable TV – 0.6% | ||||||||
Time Warner Cable, Inc., 5%, 2/01/2020 | $ | 3,475,000 | $ | 3,707,113 | ||||
|
| |||||||
Chemicals – 2.1% | ||||||||
CF Industries, Inc., 6.875%, 5/01/2018 | $ | 2,348,000 | $ | 2,438,985 | ||||
Chevron Phillips Chemical Co. LLC, 1.7%, 5/01/2018 (n) | 2,350,000 | 2,351,224 | ||||||
Dow Chemical Co., 8.55%, 5/15/2019 | 1,570,000 | 1,758,458 | ||||||
E.I. du Pont de Nemours & Co., 2.2%, 5/01/2020 | 2,145,000 | 2,156,641 | ||||||
LyondellBasell Industries N.V., 5%, 4/15/2019 | 1,267,000 | 1,324,574 | ||||||
Sherwin-Williams Co., 2.25%, 5/15/2020 | 2,652,000 | 2,657,933 | ||||||
|
| |||||||
$ | 12,687,815 | |||||||
|
| |||||||
Computer Software – 0.3% | ||||||||
Diamond 1 Finance Corp./Diamond 2 Finance Corp., 3.48%, 6/01/2019 (n) | $ | 1,660,000 | $ | 1,698,804 | ||||
|
| |||||||
Conglomerates – 0.4% | ||||||||
Roper Industries, Inc., 1.85%, 11/15/2017 | $ | 1,299,000 | $ | 1,299,934 | ||||
Roper Technologies, Inc., 2.8%, 12/15/2021 | 783,000 | 789,666 | ||||||
|
| |||||||
$ | 2,089,600 | |||||||
|
| |||||||
Consumer Products – 1.9% | ||||||||
Mattel, Inc., 1.7%, 3/15/2018 | $ | 1,232,000 | $ | 1,230,871 | ||||
Newell Rubbermaid, Inc., 2.875%, 12/01/2019 | 3,470,000 | 3,529,559 | ||||||
Reckitt Benckiser PLC, 2.125%, 9/21/2018 (n) | 2,480,000 | 2,490,118 | ||||||
Reckitt Benckiser Treasury Services PLC, 2.375%, 6/24/2022 (n) | 4,352,000 | 4,323,581 | ||||||
|
| |||||||
$ | 11,574,129 | |||||||
|
| |||||||
Electrical Equipment – 0.8% | ||||||||
Amphenol Corp., 1.55%, 9/15/2017 | $ | 1,230,000 | $ | 1,229,713 | ||||
Arrow Electronics, Inc., 3%, 3/01/2018 | 919,000 | 925,564 | ||||||
Molex Electronic Technologies LLC, 2.878%, 4/15/2020 (n) | 2,430,000 | 2,447,498 | ||||||
|
| |||||||
$ | 4,602,775 | |||||||
|
| |||||||
Electronics – 0.4% | ||||||||
Tyco Electronics Group S.A., 2.375%, 12/17/2018 | $ | 971,000 | $ | 977,200 | ||||
Xilinx, Inc., 2.125%, 3/15/2019 | 1,490,000 | 1,496,686 | ||||||
|
| |||||||
$ | 2,473,886 | |||||||
|
| |||||||
Emerging Market Quasi-Sovereign – 0.8% | ||||||||
Corporacion Financiera de Desarrollo S.A., 3.25%, 7/15/2019 (n) | $ | 2,022,000 | $ | 2,057,385 | ||||
Petroleos Mexicanos, 3.125%, 1/23/2019 | 487,000 | 490,409 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Emerging Market Quasi-Sovereign – continued | ||||||||
State Grid International Development Co. Ltd., 1.75%, 5/22/2018 (n) | $ | 2,429,000 | $ | 2,421,888 | ||||
|
| |||||||
$ | 4,969,682 | |||||||
|
| |||||||
Emerging Market Sovereign – 0.3% | ||||||||
State of Qatar, 2.375%, 6/02/2021 (n) | $ | 1,680,000 | $ | 1,638,645 | ||||
|
| |||||||
Energy – Integrated – 0.7% | ||||||||
BP Capital Markets PLC, 2.521%, 1/15/2020 | $ | 1,371,000 | $ | 1,390,094 | ||||
Shell International Finance B.V., 1.375%, 5/10/2019 | 2,640,000 | 2,624,461 | ||||||
|
| |||||||
$ | 4,014,555 | |||||||
|
| |||||||
Financial Institutions – 0.5% | ||||||||
LeasePlan Corp. N.V., 2.5%, 5/16/2018 (n) | $ | 2,949,000 | $ | 2,956,868 | ||||
|
| |||||||
Food & Beverages – 3.2% | ||||||||
Anheuser-Busch InBev Finance, Inc., 1.9%, 2/01/2019 | $ | 2,405,000 | $ | 2,410,380 | ||||
Anheuser-Busch InBev Finance, Inc., 2.65%, 2/01/2021 | 2,528,000 | 2,561,895 | ||||||
Anheuser-Busch InBev S.A., 1.375%, 7/15/2017 | 2,700,000 | 2,699,765 | ||||||
Ingredion, Inc., 1.8%, 9/25/2017 | 1,950,000 | 1,951,164 | ||||||
J.M. Smucker Co., 1.75%, 3/15/2018 | 960,000 | 960,470 | ||||||
Kraft Heinz Foods Co., 6.125%, 8/23/2018 | 1,800,000 | 1,885,610 | ||||||
Mondelez International, Inc., FRN, 1.781%, 10/28/2019 (n) | 3,160,000 | 3,172,741 | ||||||
Pernod Ricard S.A., 5.75%, 4/07/2021 (n) | 810,000 | 902,002 | ||||||
Want Want China Finance Co., 1.875%, 5/14/2018 (n) | 2,722,000 | 2,713,058 | ||||||
Wm. Wrigley Jr. Co., 2.4%, 10/21/2018 (n) | 334,000 | 336,255 | ||||||
|
| |||||||
$ | 19,593,340 | |||||||
|
| |||||||
Food & Drug Stores – 0.4% | ||||||||
CVS Health Corp., 1.9%, 7/20/2018 | $ | 1,000,000 | $ | 1,002,598 | ||||
CVS Health Corp., 2.8%, 7/20/2020 | 1,530,000 | 1,557,690 | ||||||
|
| |||||||
$ | 2,560,288 | |||||||
|
| |||||||
Insurance – 1.2% | ||||||||
American International Group, Inc., 2.3%, 7/16/2019 | $ | 408,000 | $ | 410,164 | ||||
American International Group, Inc., 3.3%, 3/01/2021 | 3,039,000 | 3,126,620 | ||||||
Metropolitan Life Global Funding I, 2%, 4/14/2020 (n) | 2,660,000 | 2,652,725 | ||||||
Voya Financial, Inc., 2.9%, 2/15/2018 | 1,254,000 | 1,262,482 | ||||||
|
| |||||||
$ | 7,451,991 | |||||||
|
| |||||||
Insurance – Health – 0.4% | ||||||||
UnitedHealth Group, Inc., 1.45%, 7/17/2017 | $ | 2,060,000 | $ | 2,060,064 | ||||
|
| |||||||
Insurance – Property & Casualty – 0.3% | ||||||||
Marsh & McLennan Cos., Inc., 2.35%, 9/10/2019 | $ | 1,740,000 | $ | 1,751,395 | ||||
|
| |||||||
International Market Quasi-Sovereign – 3.9% | ||||||||
Bank Nederlandse Gemeenten N.V., 1.375%, 3/19/2018 (n) | $ | 4,000,000 | $ | 3,998,844 |
7
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
International Market Quasi-Sovereign – continued | ||||||||
Caisse d’Amortissement de la Dette Sociale, 1.875%, 1/13/2020 (n) | $ | 4,000,000 | $ | 4,004,676 | ||||
Dexia Credit Local S.A., 2.25%, 1/30/2019 (n) | 1,390,000 | 1,398,885 | ||||||
Dexia Credit Local, “A”, 2.25%, 2/18/2020 (n) | 3,880,000 | 3,887,271 | ||||||
Electricite de France, 2.15%, 1/22/2019 (n) | 2,500,000 | 2,508,075 | ||||||
Kommunalbanken A.S., 1%, 3/15/2018 (n) | 2,000,000 | 1,994,734 | ||||||
Nederlandse Waterschapsbank N.V., 1.5%, 4/16/2018 (n) | 1,520,000 | 1,521,000 | ||||||
Swedish Export Credit Corp., 1.125%, 8/28/2019 | 4,510,000 | 4,454,428 | ||||||
|
| |||||||
$ | 23,767,913 | |||||||
|
| |||||||
International Market Sovereign – 0.2% | ||||||||
Republic of Finland, 1%, 4/23/2019 (n) | $ | 1,190,000 | $ | 1,179,115 | ||||
|
| |||||||
Internet – 0.1% | ||||||||
Baidu, Inc., 2.75%, 6/09/2019 | $ | 440,000 | $ | 443,363 | ||||
|
| |||||||
Major Banks – 17.3% | ||||||||
ABN AMRO Bank N.V., 2.1%, 1/18/2019 (n) | $ | 3,280,000 | $ | 3,285,127 | ||||
Bank of America Corp., 6%, 9/01/2017 | 5,050,000 | 5,084,739 | ||||||
Bank of America Corp., 6.875%, 4/25/2018 | 1,000,000 | 1,040,629 | ||||||
Bank of America Corp., 2.151%, 11/09/2020 | 1,300,000 | 1,294,115 | ||||||
Bank of America Corp., 2.881% to 4/24/2022, FRN to 4/24/2023 | 3,106,000 | 3,111,740 | ||||||
Bank of Montreal, FRN, 1.755%, 4/09/2018 | 1,380,000 | 1,384,974 | ||||||
Bank of Montreal, FRN, 1.808%, 7/18/2019 | 2,110,000 | 2,127,078 | ||||||
Bank of Nova Scotia, 1.44%, 9/01/2017 | 3,610,000 | 3,611,090 | ||||||
Barclays PLC, 3.25%, 1/12/2021 | 4,360,000 | 4,433,980 | ||||||
Commonwealth Bank of Australia, 1.75%, 11/02/2018 | 610,000 | 610,490 | ||||||
Commonwealth Bank of Australia, 2.3%, 9/06/2019 | 2,579,000 | 2,595,653 | ||||||
Commonwealth Bank of Australia, FRN, 1.489%, 9/08/2017 (n) | 1,700,000 | 1,700,707 | ||||||
Credit Agricole, 1.43%, 9/01/2017 | 3,630,000 | 3,631,271 | ||||||
Credit Agricole, “A”, FRN, 2.585%, 1/10/2022 (n) | 1,270,000 | 1,294,930 | ||||||
Credit Suisse Group AG, “A”, 3.574%, 1/09/2023 (n) | 2,020,000 | 2,069,967 | ||||||
Credit Suisse New York, 1.75%, 1/29/2018 | 2,170,000 | 2,171,174 | ||||||
Goldman Sachs Group, Inc., 2%, 4/25/2019 | 60,000 | 59,974 | ||||||
Goldman Sachs Group, Inc., 2.55%, 10/23/2019 | 6,227,000 | 6,294,955 | ||||||
Goldman Sachs Group, Inc., 2.6%, 12/27/2020 | 2,544,000 | 2,557,547 | ||||||
Goldman Sachs Group, Inc., 3%, 4/26/2022 | 1,970,000 | 1,985,136 | ||||||
HSBC Holdings PLC, 3.262% to 3/13/2022, FRN to 3/13/2023 | 1,745,000 | 1,778,066 | ||||||
ING Bank N.V., 1.8%, 3/16/2018 (n) | 3,290,000 | 3,294,122 | ||||||
JPMorgan Chase & Co., 2.776% to 4/25/2022, FRN to 4/25/2023 | 2,896,000 | 2,901,201 | ||||||
Mitsubishi UFJ Financial Group, Inc., 2.95%, 3/01/2021 | 1,340,000 | 1,361,736 | ||||||
Mitsubishi UFJ Financial Group, Inc., 2.998%, 2/22/2022 | 1,340,000 | 1,359,903 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Major Banks – continued | ||||||||
Mizuho Bank Ltd., FRN, 2.346%, 10/20/2018 (n) | $ | 2,390,000 | $ | 2,414,648 | ||||
Morgan Stanley, 2.375%, 7/23/2019 | 4,566,000 | 4,597,624 | ||||||
Morgan Stanley, 2.65%, 1/27/2020 | 2,300,000 | 2,324,254 | ||||||
PNC Bank N.A., 2.25%, 7/02/2019 | 3,080,000 | 3,102,518 | ||||||
Royal Bank of Canada, 1.5%, 7/29/2019 | 3,527,000 | 3,499,906 | ||||||
Skandinaviska Enskilda, 1.75%, 3/19/2018 (n) | 1,721,000 | 1,721,620 | ||||||
Sumitomo Mitsui Banking Corp., FRN, 1.828%, 10/19/2018 | 2,710,000 | 2,717,097 | ||||||
Svenska Handelsbanken AB, 2.25%, 6/17/2019 | 2,580,000 | 2,594,814 | ||||||
Swedbank AB, 2.125%, 9/29/2017 (n) | 5,039,000 | 5,047,460 | ||||||
Toronto-Dominion Bank, 1.45%, 9/06/2018 | 3,040,000 | 3,034,075 | ||||||
Toronto-Dominion Bank, 1.831%, 8/13/2019 | 2,770,000 | 2,788,889 | ||||||
UBS AG, 2.375%, 8/14/2019 | 1,660,000 | 1,675,111 | ||||||
UBS Group Funding (Jersey) Ltd., 3%, 4/15/2021 (n) | 2,915,000 | 2,959,707 | ||||||
UBS Group Funding (Switzerland) AG, 3.491%, 5/23/2023 (n) | 3,498,000 | 3,578,814 | ||||||
Wells Fargo Bank N.A., FRN, 1.893%, 1/22/2018 | 250,000 | 250,905 | ||||||
Westpac Banking Corp., 1.55%, 5/25/2018 | 1,580,000 | 1,581,005 | ||||||
|
| |||||||
$ | 104,928,751 | |||||||
|
| |||||||
Medical & Health Technology & Services – 1.5% | ||||||||
Becton, Dickinson and Co., 2.675%, 12/15/2019 | $ | 2,571,000 | $ | 2,602,479 | ||||
Becton, Dickinson and Co., 2.404%, 6/05/2020 | 1,234,000 | 1,235,993 | ||||||
Becton, Dickinson and Co., 2.894%, 6/06/2022 | 1,367,000 | 1,371,273 | ||||||
Covidien International Finance S.A., 6%, 10/15/2017 | 1,485,000 | 1,503,451 | ||||||
Laboratory Corp. of America Holdings, 2.625%, 2/01/2020 | 2,460,000 | 2,480,258 | ||||||
|
| |||||||
$ | 9,193,454 | |||||||
|
| |||||||
Medical Equipment – 1.3% | ||||||||
Abbott Laboratories, 2.35%, 11/22/2019 | $ | 2,680,000 | $ | 2,700,148 | ||||
Abbott Laboratories, 2.9%, 11/30/2021 | 2,030,000 | 2,052,675 | ||||||
Medtronic, Inc., 1.5%, 3/15/2018 | 1,320,000 | 1,320,282 | ||||||
Zimmer Holdings, Inc., 2%, 4/01/2018 | 1,740,000 | 1,743,151 | ||||||
|
| |||||||
$ | 7,816,256 | |||||||
|
| |||||||
Metals & Mining – 0.4% | ||||||||
Freeport-McMoRan, Inc., 2.375%, 3/15/2018 | $ | 800,000 | $ | 796,000 | ||||
Glencore Funding LLC, 2.125%, 4/16/2018 (n) | 1,650,000 | 1,647,195 | ||||||
|
| |||||||
$ | 2,443,195 | |||||||
|
| |||||||
Midstream – 1.2% | ||||||||
Enbridge, Inc., 2.9%, 7/15/2022 | $ | 1,721,000 | $ | 1,717,558 | ||||
Energy Transfer Partners LP, 2.5%, 6/15/2018 | 1,050,000 | 1,055,150 |
8
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Midstream – continued | ||||||||
EnLink Midstream Partners LP, 2.7%, 4/01/2019 | $ | 1,342,000 | $ | 1,339,061 | ||||
Enterprise Products Operating LP, 6.5%, 1/31/2019 | 630,000 | 671,996 | ||||||
Kinder Morgan (Delaware), Inc., 2%, 12/01/2017 | 1,460,000 | 1,460,788 | ||||||
ONEOK Partners LP, 2%, 10/01/2017 | 775,000 | 775,306 | ||||||
TransCanada PipeLines Ltd., 1.875%, 1/12/2018 | 195,000 | 195,261 | ||||||
|
| |||||||
$ | 7,215,120 | |||||||
|
| |||||||
Mortgage-Backed – 2.1% | ||||||||
Fannie Mae, 2.8%, 3/01/2018 | $ | 2,955,966 | $ | 2,963,034 | ||||
Fannie Mae, 3.729%, 6/01/2018 | 6,987,302 | 7,056,925 | ||||||
Fannie Mae, 5.5%, 5/01/2025 | 470,867 | 482,448 | ||||||
Fannie Mae, 5%, 7/01/2039 | 775,993 | 848,234 | ||||||
Fannie Mae, 5%, 3/01/2042 (f) | 877,517 | 961,133 | ||||||
Fannie Mae, FRN, 1.285%, 5/25/2018 | 592,751 | 592,736 | ||||||
Freddie Mac, 0.882%, 4/25/2024 (i) | 629,461 | 31,442 | ||||||
|
| |||||||
$ | 12,935,952 | |||||||
|
| |||||||
Network & Telecom – 2.0% | ||||||||
AT&T, Inc., 2.3%, 3/11/2019 | $ | 1,530,000 | $ | 1,539,074 | ||||
AT&T, Inc., 2.45%, 6/30/2020 | 3,240,000 | 3,256,637 | ||||||
AT&T, Inc., 3.2%, 3/01/2022 | 2,171,000 | 2,197,486 | ||||||
British Telecommunications PLC, 2.35%, 2/14/2019 | 1,860,000 | 1,870,286 | ||||||
Verizon Communications, Inc., 4.5%, 9/15/2020 | 3,172,000 | 3,388,464 | ||||||
|
| |||||||
$ | 12,251,947 | |||||||
|
| |||||||
Oil Services – 0.3% | ||||||||
Schlumberger Holdings Corp., 1.9%, 12/21/2017 (n) | $ | 1,480,000 | $ | 1,481,368 | ||||
|
| |||||||
Oils – 0.5% | ||||||||
Marathon Petroleum Corp., 2.7%, 12/14/2018 | $ | 2,908,000 | $ | 2,930,182 | ||||
|
| |||||||
Other Banks & Diversified Financials – 6.7% | ||||||||
Banque Federative du Credit Mutuel, 2.75%, 1/22/2019 (n) | $ | 798,000 | $ | 806,967 | ||||
Banque Federative du Credit Mutuel, 2%, 4/12/2019 (n) | 2,430,000 | 2,429,733 | ||||||
BNZ International Funding Ltd. London, 1.9%, 2/26/2018 (n) | 2,470,000 | 2,472,379 | ||||||
BPCE S.A., 1.625%, 1/26/2018 | 840,000 | 838,607 | ||||||
Branch Banking & Trust Co., 1.45%, 5/10/2019 | 2,610,000 | 2,589,726 | ||||||
Capital One Financial Corp., 2.5%, 5/12/2020 | 1,708,000 | 1,715,399 | ||||||
Citigroup, Inc., 2.4%, 2/18/2020 | 4,151,000 | 4,173,324 | ||||||
Citizens Bank N.A., 2.3%, 12/03/2018 | 1,380,000 | 1,384,971 | ||||||
Citizens Bank N.A., 2.5%, 3/14/2019 | 1,400,000 | 1,410,261 | ||||||
Citizens Bank N.A., 2.25%, 3/02/2020 | 1,400,000 | 1,398,690 | ||||||
Citizens Bank N.A., 2.55%, 5/13/2021 | 374,000 | 374,206 | ||||||
Compass Bank, 2.875%, 6/29/2022 | 2,717,000 | 2,706,640 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Other Banks & Diversified Financials – continued | ||||||||
Discover Bank, 3.1%, 6/04/2020 | $ | 1,705,000 | $ | 1,737,468 | ||||
Fifth Third Bancorp, 2.3%, 3/01/2019 | 1,171,000 | 1,175,754 | ||||||
Fifth Third Bancorp, 2.3%, 3/15/2019 | 1,200,000 | 1,207,535 | ||||||
First Republic Bank, 2.375%, 6/17/2019 | 849,000 | 853,584 | ||||||
Groupe BPCE S.A., 2.5%, 12/10/2018 | 2,980,000 | 3,006,531 | ||||||
Lloyds Bank PLC, 2.153%, 1/22/2019 | 730,000 | 738,100 | ||||||
National Australia Bank Ltd., 1.375%, 7/12/2019 | 1,900,000 | 1,876,814 | ||||||
National Bank of Canada, FRN, 2.081%, 12/14/2018 | 2,480,000 | 2,502,280 | ||||||
Santander UK Group Holdings PLC, 2.875%, 8/05/2021 | 3,090,000 | 3,097,104 | ||||||
SunTrust Banks, Inc., 2.7%, 1/27/2022 | 2,255,000 | 2,259,708 | ||||||
|
| |||||||
$ | 40,755,781 | |||||||
|
| |||||||
Personal Computers & Peripherals – 0.1% | ||||||||
Equifax, Inc., 2.3%, 6/01/2021 | $ | 743,000 | $ | 737,900 | ||||
|
| |||||||
Pharmaceuticals – 3.5% | ||||||||
Actavis Funding SCS, 2.35%, 3/12/2018 | $ | 1,038,000 | $ | 1,042,334 | ||||
Amgen, Inc., 2.2%, 5/11/2020 | 3,420,000 | 3,437,281 | ||||||
Bayer U.S. Finance LLC, 1.5%, 10/06/2017 (n) | 1,550,000 | 1,549,637 | ||||||
Biogen, Inc., 2.9%, 9/15/2020 | 1,780,000 | 1,815,682 | ||||||
Celgene Corp., 2.125%, 8/15/2018 | 2,550,000 | 2,559,851 | ||||||
EMD Finance LLC, 1.7%, 3/19/2018 (n) | 2,790,000 | 2,789,604 | ||||||
Gilead Sciences, Inc., 1.85%, 9/04/2018 | 2,490,000 | 2,495,869 | ||||||
Mylan N.V., 2.5%, 6/07/2019 | 1,170,000 | 1,179,348 | ||||||
Shire Acquisitions Investments Ireland Designated Activity Co., 1.9%, 9/23/2019 | 4,540,000 | 4,518,921 | ||||||
|
| |||||||
$ | 21,388,527 | |||||||
|
| |||||||
Real Estate – Healthcare – 0.3% | ||||||||
Welltower, Inc., REIT, 4.7%, 9/15/2017 | $ | 1,845,000 | $ | 1,855,170 | ||||
|
| |||||||
Real Estate – Office – 0.3% | ||||||||
Vornado Realty LP, REIT, 2.5%, 6/30/2019 | $ | 1,824,000 | $ | 1,838,408 | ||||
|
| |||||||
Real Estate – Retail – 0.4% | ||||||||
Simon Property Group, Inc., REIT, 1.5%, 2/01/2018 (n) | $ | 1,208,000 | $ | 1,207,104 | ||||
WEA Finance LLC/Westfield Co., REIT, 1.75%, 9/15/2017 (n) | 1,190,000 | 1,189,994 | ||||||
|
| |||||||
$ | 2,397,098 | |||||||
|
| |||||||
Restaurants – 0.2% | ||||||||
McDonald’s Corp., 2.1%, 12/07/2018 | $ | 1,390,000 | $ | 1,397,820 | ||||
|
| |||||||
Retailers – 0.3% | ||||||||
Dollar General Corp., 1.875%, 4/15/2018 | $ | 365,000 | $ | 365,265 | ||||
Wesfarmers Ltd., 1.874%, 3/20/2018 (n) | 1,593,000 | 1,595,361 | ||||||
|
| |||||||
$ | 1,960,626 | |||||||
|
| |||||||
Specialty Chemicals – 0.2% | ||||||||
Airgas, Inc., 3.05%, 8/01/2020 | $ | 1,270,000 | $ | 1,301,420 | ||||
|
| |||||||
Supranational – 0.7% | ||||||||
Corporacion Andina de Fomento, 1.5%, 8/08/2017 | $ | 1,650,000 | $ | 1,650,017 |
9
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Supranational – continued | ||||||||
Corporacion Andina de Fomento, FRN, 1.721%, 1/29/2018 | $ | 1,490,000 | $ | 1,490,441 | ||||
Corporacion Andina de Fomento, FRN, 2%, 5/10/2019 | 1,330,000 | 1,333,721 | ||||||
|
| |||||||
$ | 4,474,179 | |||||||
|
| |||||||
Telecommunications – Wireless – 1.1% | ||||||||
American Tower Corp., 2.8%, 6/01/2020 | $ | 857,000 | $ | 868,646 | ||||
American Tower Trust I, REIT, 1.551%, 3/15/2043 (n) | 1,900,000 | 1,896,135 | ||||||
Crown Castle International Corp., 3.4%, 2/15/2021 | 1,000,000 | 1,026,848 | ||||||
SBA Tower Trust, 2.898%, 10/15/2044 (n) | 2,395,000 | 2,407,616 | ||||||
SBA Tower Trust, 2.877%, 7/10/2046 (n) | 629,000 | 627,711 | ||||||
|
| |||||||
$ | 6,826,956 | |||||||
|
| |||||||
Tobacco – 1.3% | ||||||||
Imperial Tobacco Finance PLC, 2.05%, 7/20/2018 (n) | $ | 2,494,000 | $ | 2,494,935 | ||||
Imperial Tobacco Finance PLC, 2.95%, 7/21/2020 (z) | 3,388,000 | 3,445,240 | ||||||
Reynolds American, Inc., 2.3%, 6/12/2018 | 1,950,000 | 1,958,492 | ||||||
|
| |||||||
$ | 7,898,667 | |||||||
|
| |||||||
Transportation – Services – 0.5% | ||||||||
TTX Co., 2.6%, 6/15/2020 (n) | $ | 3,160,000 | $ | 3,161,378 | ||||
|
| |||||||
U.S. Government Agencies and Equivalents – 1.0% | ||||||||
Hashemite Kingdom of Jordan, 1.945%, 6/23/2019 | $ | 2,040,000 | $ | 2,055,888 | ||||
National Credit Union Administration, “1-A”, FRN, 1.673%, 1/08/2020 | 941,612 | 942,646 | ||||||
National Credit Union Administration, “1-A”, FRN, 1.464%, 3/06/2020 | 182,598 | 182,628 | ||||||
National Credit Union Administration, FRN, 1.593%, 11/06/2017 | 698,664 | 698,998 | ||||||
National Credit Union Administration, FRN, 1.517%, 3/11/2020 | 1,366,472 | 1,366,236 | ||||||
National Credit Union Administration, FRN, 1.673%, 10/07/2020 | 430,459 | 431,040 | ||||||
National Credit Union Administration, FRN, 1.446%, 12/07/2020 | 519,256 | 519,566 | ||||||
|
| |||||||
$ | 6,197,002 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
U.S. Treasury Obligations – 4.8% | ||||||||
U.S. Treasury Notes, 1.875%, 2/28/2022 | $ | 4,000,000 | $ | 4,004,844 | ||||
U.S. Treasury Notes, 1.375%, 2/15/2020 | 24,900,000 | 24,821,216 | ||||||
|
| |||||||
$ | 28,826,060 | |||||||
|
| |||||||
Utilities – Electric Power – 4.6% | ||||||||
Dominion Energy, Inc., 2.579%, 7/01/2020 | $ | 1,761,000 | $ | 1,770,097 | ||||
Dominion Resources, Inc., 1.6%, 8/15/2019 | 1,070,000 | 1,060,937 | ||||||
Dominion Resources, Inc., 2.962%, 7/01/2019 | 1,310,000 | 1,329,588 | ||||||
Emera U.S. Finance LP, 2.15%, 6/15/2019 | 2,021,000 | 2,019,120 | ||||||
Enel Finance International S.A., 6.25%, 9/15/2017 (n) | 680,000 | 685,991 | ||||||
Eversource Energy, 2.5%, 3/15/2021 | 1,240,000 | 1,235,407 | ||||||
FirstEnergy Corp., 2.85%, 7/15/2022 | 856,000 | 855,189 | ||||||
Great Plains Energy, Inc, 2.5%, 3/09/2020 | 1,784,000 | 1,800,648 | ||||||
NextEra Energy Capital Holdings, Inc., 2.056%, 9/01/2017 | 4,180,000 | 4,181,952 | ||||||
NextEra Energy Capital Holdings, Inc., 2.3%, 4/01/2019 | 1,722,000 | 1,729,904 | ||||||
PG&E Corp., 2.4%, 3/01/2019 | 2,129,000 | 2,139,447 | ||||||
Southern Co., 2.45%, 9/01/2018 | 3,000,000 | 3,019,734 | ||||||
Southern Co., 1.85%, 7/01/2019 | 2,600,000 | 2,589,922 | ||||||
Southern Power Co., 1.85%, 12/01/2017 | 440,000 | 440,386 | ||||||
Virginia Electric & Power Co., 1.2%, 1/15/2018 | 2,790,000 | 2,784,732 | ||||||
|
| |||||||
$ | 27,643,054 | |||||||
|
| |||||||
Total Bonds (Identified Cost, $591,219,829) | $ | 592,898,556 | ||||||
|
| |||||||
MONEY MARKET FUNDS – 2.0% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $12,129,109) | 12,129,303 | $ | 12,129,303 | |||||
|
| |||||||
Total Investments (Identified Cost, $603,348,938) | $ | 605,027,859 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 0.2% | 1,044,607 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 606,072,466 | ||||||
|
|
(f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
(i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
(n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $203,006,264, representing 33.5% of net assets. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
10
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
(z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
Restricted Securities | Acquisition Date | Cost | Value | |||||||
Ares CLO Ltd., 2013-3A, “B1R”, FRN, 2.658%, 10/17/2024 | 3/16/17 | $2,162,000 | $2,161,989 | |||||||
Atrium CDO Corp., 2010-A, “B1R”, FRN, 2.536%, 7/16/2025 | 5/12/17 | 2,575,000 | 2,578,183 | |||||||
Babson CLO Ltd., 2013-IIA, “BR”, FRN, 2.658%, 10/17/2026 | 3/10/17 | 2,609,000 | 2,609,126 | |||||||
Chesapeake Funding II LLC, 2017-2A, “B”, 2.81%, 5/15/2029 | 5/23/17 | 1,199,940 | 1,198,122 | |||||||
Chesapeake Funding II LLC, 2017-2A, “C”, 3.01%, 5/15/2029 | 5/23/17 | 535,877 | 535,036 | |||||||
Credit Acceptance Auto Loan Trust, 2017-2A, “B”, 3.02%, 4/15/2026 | 6/20/17 | 2,606,189 | 2,606,188 | |||||||
Dryden Senior Loan Fund, 2014-31A, “CR”, FRN, 3.258%, 4/18/2026 | 3/22/17 | 790,000 | 788,001 | |||||||
HarbourView CLO VII Ltd., “B1R”, FRN, 2.831%, 11/18/2026 | 2/09/17-3/09/17 | 2,716,278 | 2,716,339 | |||||||
Imperial Tobacco Finance PLC, 2.95%, 7/21/2020 | 3/30/17 | 3,427,276 | 3,445,240 | |||||||
Magnetite XI Ltd., 2014-11A, “BR”, FRN, 3.258%, 1/18/2027 | 4/03/17 | 1,204,000 | 1,203,990 | |||||||
Mountain Hawk CLO Ltd., 2014-3A, “BR”, FRN, 2.958%, 4/18/2025 | 4/04/17 | 3,468,000 | 3,467,976 | |||||||
Nationstar HECM Loan Trust, 2016-2A, “A”, 2.239%, 6/25/2026 | 6/23/16 | 365,161 | 369,280 | |||||||
Nextgear Floorplan Master Owner Trust, 2017-1A, “A2”, 2.54%, 4/18/2022 | 4/24/17 | 1,377,906 | 1,382,121 | |||||||
Oaktree CLO Ltd., 2014-2A, “BR”, FRN, 3.706%, 10/20/2026 | 2/17/17 | 1,752,000 | 1,753,741 | |||||||
OneMain Direct Auto Receivables Trust, 2016-1A, “A”, 2.04%, 1/15/2021 | 7/12/16 | 468,016 | 468,558 | |||||||
Oscar U.S. Funding Trust, 2017-1A, “A3”, 2.82%, 6/10/2021 | 3/15/17 | 1,979,665 | 1,990,027 | |||||||
Silver Spring CLO Ltd., 4.054%, 10/15/2026 | 6/21/17 | 1,393,000 | 1,393,000 | |||||||
TICP CLO Ltd., FRN, 3.406%, 1/20/2027 | 3/20/17 | 1,528,000 | 1,528,014 | |||||||
West CLO Ltd., 2013-1A, “A2BR”, 3.393%, 11/07/2025 | 4/28/17 | 1,720,000 | 1,721,526 | |||||||
Total Restricted Securities | $33,916,457 | |||||||||
% of Net assets | 5.6% |
The following abbreviations are used in this report and are defined:
CDO | Collateralized Debt Obligation |
CLO | Collateralized Loan Obligation |
FRN | Floating Rate Note. Interest rate resets periodically and the current rate may not be the rate reported at period end. |
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
Derivative Contracts at 6/30/17
Futures Contracts at 6/30/17
Description | Currency | Contracts | Value | Expiration Date | Unrealized Appreciation (Depreciation) | |||||||||||||
Liability Derivatives | ||||||||||||||||||
Interest Rate Futures | ||||||||||||||||||
U.S. Treasury Note 2 yr (Long) | USD | 73 | $15,775,984 | September - 2017 | $(24,211 | ) | ||||||||||||
U.S. Treasury Note 5 yr (Long) | USD | 241 | 28,398,461 | September - 2017 | (61,565 | ) | ||||||||||||
|
| |||||||||||||||||
$(85,776 | ) | |||||||||||||||||
|
|
At June 30, 2017, the fund had liquid securities with an aggregate value of $238,888 to cover any commitments for certain derivative contracts.
See Notes to Financial Statements
11
Table of Contents
MFS Limited Maturity Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $591,219,829) | $592,898,556 | |||
Underlying affiliated funds, at value (identified cost, $12,129,109) | 12,129,303 | |||
Total investments, at value (identified cost, $603,348,938) | $605,027,859 | |||
Cash | 47,150 | |||
Receivables for | ||||
Investments sold | 2,024,152 | |||
Fund shares sold | 34 | |||
Interest | 3,246,646 | |||
Other assets | 2,290 | |||
Total assets | $610,348,131 | |||
Liabilities | ||||
Payables for | ||||
Daily variation margin on open futures contracts | $48,264 | |||
Investments purchased | 3,112,554 | |||
Fund shares reacquired | 1,009,227 | |||
Payable to affiliates | ||||
Investment adviser | 13,642 | |||
Shareholder servicing costs | 57 | |||
Distribution and/or service fees | 2,038 | |||
Payable for independent Trustees’ compensation | 441 | |||
Accrued expenses and other liabilities | 89,442 | |||
Total liabilities | $4,275,665 | |||
Net assets | $606,072,466 | |||
Net assets consist of | ||||
Paid-in capital | $591,179,523 | |||
Unrealized appreciation (depreciation) on investments | 1,593,145 | |||
Accumulated net realized gain (loss) on investments | (710,529 | ) | ||
Undistributed net investment income | 14,010,327 | |||
Net assets | $606,072,466 | |||
Shares of beneficial interest outstanding | 58,918,047 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $457,459,642 | 44,441,114 | $10.29 | |||||||||
Service Class | 148,612,824 | 14,476,933 | 10.27 |
See Notes to Financial Statements
12
Table of Contents
MFS Limited Maturity Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment income | ||||
Income | ||||
Interest | $6,356,961 | |||
Dividends from underlying affiliated funds | 59,676 | |||
Total investment income | $6,416,637 | |||
Expenses | ||||
Management fee | $1,220,184 | |||
Distribution and/or service fees | 186,868 | |||
Shareholder servicing costs | 5,852 | |||
Administrative services fee | 53,997 | |||
Independent Trustees’ compensation | 7,817 | |||
Custodian fee | 17,548 | |||
Shareholder communications | 32,536 | |||
Audit and tax fees | 31,392 | |||
Legal fees | 3,425 | |||
Miscellaneous | 13,055 | |||
Total expenses | $1,572,674 | |||
Reduction of expenses by investment adviser | (23,404 | ) | ||
Net expenses | $1,549,270 | |||
Net investment income | $4,867,367 | |||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) (identified cost basis) | ||||
Investments: | ||||
Non-affiliated issuers | $228,619 | |||
Underlying affiliated funds | (3,252 | ) | ||
Futures contracts | 689,536 | |||
Net realized gain (loss) on investments | $914,903 | |||
Change in unrealized appreciation (depreciation) | ||||
Investments | $1,412,145 | |||
Futures contracts | (133,898 | ) | ||
Net unrealized gain (loss) on investments | $1,278,247 | |||
Net realized and unrealized gain (loss) on investments | $2,193,150 | |||
Change in net assets from operations | $7,060,517 |
See Notes to Financial Statements
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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 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income | $4,867,367 | $9,011,152 | ||||||
Net realized gain (loss) on investments | 914,903 | (345,999 | ) | |||||
Net unrealized gain (loss) on investments | 1,278,247 | 2,653,650 | ||||||
Change in net assets from operations | $7,060,517 | $11,318,803 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(8,450,814 | ) | |||||
Change in net assets from fund share transactions | $(28,697,219 | ) | $(68,490,037 | ) | ||||
Total change in net assets | $(21,636,702 | ) | $(65,622,048 | ) | ||||
Net assets | ||||||||
At beginning of period | 627,709,168 | 693,331,216 | ||||||
At end of period (including undistributed net investment income of $14,010,327 and | $606,072,466 | $627,709,168 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.17 | $10.14 | $10.23 | $10.32 | $10.29 | $10.18 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.08 | $0.15 | (c) | $0.12 | $0.11 | $0.12 | $0.11 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.04 | 0.02 | (0.07 | ) | (0.03 | ) | (0.05 | ) | 0.12 | |||||||||||||||
Total from investment operations | $0.12 | $0.17 | $0.05 | $0.08 | $0.07 | $0.23 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.14 | ) | $(0.14 | ) | $(0.13 | ) | $(0.01 | ) | $(0.12 | ) | |||||||||||||
From net realized gain on investments | — | — | — | (0.04 | ) | (0.03 | ) | — | ||||||||||||||||
Total distributions declared to shareholders | $— | $(0.14 | ) | $(0.14 | ) | $(0.17 | ) | $(0.04 | ) | $(0.12 | ) | |||||||||||||
Net asset value, end of period (x) | $10.29 | $10.17 | $10.14 | $10.23 | $10.32 | $10.29 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 1.18 | (n) | 1.68 | (c) | 0.48 | 0.80 | 0.71 | 2.24 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.45 | (a) | 0.42 | (c) | 0.45 | 0.44 | 0.45 | 0.64 | ||||||||||||||||
Expenses after expense reductions (f) | 0.45 | (a) | 0.42 | (c) | 0.44 | 0.44 | 0.45 | N/A | ||||||||||||||||
Net investment income | 1.66 | (a) | 1.43 | (c) | 1.13 | 1.10 | 1.19 | 1.12 | ||||||||||||||||
Portfolio turnover | 37 | (n) | 30 | 26 | 24 | 34 | 213 | |||||||||||||||||
Net assets at end of period (000 omitted) | $457,460 | $473,730 | $520,750 | $627,457 | $713,534 | $723,068 | ||||||||||||||||||
Service Class | Six months 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.16 | $10.12 | $10.20 | $10.30 | $10.28 | $10.17 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.07 | $0.12 | (c) | $0.09 | $0.09 | $0.10 | $0.09 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.04 | 0.03 | (0.06 | ) | (0.04 | ) | (0.05 | ) | 0.11 | |||||||||||||||
Total from investment operations | $0.11 | $0.15 | $0.03 | $0.05 | $0.05 | $0.20 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.11 | ) | $(0.11 | ) | $(0.11 | ) | $— | $(0.09 | ) | ||||||||||||||
From net realized gain on investments | — | — | — | (0.04 | ) | (0.03 | ) | — | ||||||||||||||||
Total distributions declared to shareholders | $— | $(0.11 | ) | $(0.11 | ) | $(0.15 | ) | $(0.03 | ) | $(0.09 | ) | |||||||||||||
Net asset value, end of period (x) | $10.27 | $10.16 | $10.12 | $10.20 | $10.30 | $10.28 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 1.08 | (n) | 1.48 | (c) | 0.28 | 0.49 | 0.48 | 2.01 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.70 | (a) | 0.68 | (c) | 0.70 | 0.69 | 0.70 | 0.88 | ||||||||||||||||
Expenses after expense reductions (f) | 0.70 | (a) | 0.67 | (c) | 0.69 | 0.69 | 0.70 | N/A | ||||||||||||||||
Net investment income | 1.41 | (a) | 1.18 | (c) | 0.88 | 0.85 | 0.94 | 0.87 | ||||||||||||||||
Portfolio turnover | 37 | (n) | 30 | 26 | 24 | 34 | 213 | |||||||||||||||||
Net assets at end of period (000 omitted) | $148,613 | $153,979 | $172,581 | $211,505 | $229,865 | $181,272 |
See Notes to Financial Statements
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MFS Limited Maturity Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Limited Maturity Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). For entities that hold callable debt securities at a premium, ASU 2017-08 requires that the premium be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management is still evaluating the potential impacts of ASU 2017-08 but believes that adoption of ASU 2017-08 will not have a material effect on the fund’s overall financial position or its overall results of operations.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from
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Notes to Financial Statements (unaudited) – continued
third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments not reflected in total investments, such as futures contracts. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. Treasury Bonds & U.S. Government Agency & Equivalents | $— | $35,023,062 | $— | $35,023,062 | ||||||||||||
Non-U.S. Sovereign Debt | — | 36,029,534 | — | 36,029,534 | ||||||||||||
U.S. Corporate Bonds | — | 239,195,740 | — | 239,195,740 | ||||||||||||
Residential Mortgage-Backed Securities | — | 18,343,433 | — | 18,343,433 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 5,631,811 | — | 5,631,811 | ||||||||||||
Asset-Backed Securities (including CDOs) | — | 123,554,502 | — | 123,554,502 | ||||||||||||
Foreign Bonds | — | 135,120,474 | — | 135,120,474 | ||||||||||||
Mutual Funds | 12,129,303 | — | — | 12,129,303 | ||||||||||||
Total Investments | $12,129,303 | $592,898,556 | $— | $605,027,859 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts – Liabilities | $(85,776 | ) | $— | $— | $(85,776 | ) |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund were futures contracts. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
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Notes to Financial Statements (unaudited) – continued
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2017 as reported in the Statement of Assets and Liabilities:
Fair Value (a) | ||||||
Risk | Derivative Contracts | Liability Derivatives | ||||
Interest Rate | Interest Rate Futures | $(85,776 | ) |
(a) | The value of futures contracts includes cumulative appreciation (depreciation) as reported in the fund’s Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2017 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $689,536 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation (depreciation) on derivatives held by the fund for the six months ended June 30, 2017 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $(133,898 | ) |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. Margin requirements are set by the clearing broker and the clearing house for cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options) while collateral terms are contract specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options). For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such agreement and one amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as “Restricted cash” or “Deposits with brokers.” Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a certain percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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Notes to Financial Statements (unaudited) – continued
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Interest payments received in additional securities are recorded on the ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and that value may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
To mitigate this risk of loss on TBA securities and other types of forward settling mortgage-backed securities, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a certain deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and one amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund’s collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities.
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Notes to Financial Statements (unaudited) – continued
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $8,450,814 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $603,745,032 | |||
Gross appreciation | 2,270,562 | |||
Gross depreciation | (987,735 | ) | ||
Net unrealized appreciation (depreciation) | $1,282,827 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 9,142,960 | |||
Capital loss carryforwards | (1,109,164 | ) | ||
Net unrealized appreciation (depreciation) | (201,370 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2016, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
Short-Term | $(172,540 | ) | ||
Long-Term | (936,624 | ) | ||
Total | $(1,109,164 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | ||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||
Initial Class | $— | $6,727,090 | ||||||
Service Class | — | 1,723,724 | ||||||
Total | $— | $8,450,814 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.40% of the fund’s average daily net assets.
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $23,404, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.39% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
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Notes to Financial Statements (unaudited) – continued
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $5,286, which equated to 0.0017% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $566.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0177% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $593 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of investments, other than short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $28,891,543 | $4,200,968 | ||||||
Investments (non-U.S. Government securities) | $192,711,443 | $226,610,488 |
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 1,559,261 | $15,960,155 | 2,860,810 | $29,260,624 | ||||||||||||
Service Class | 718,481 | 7,338,035 | 1,467,372 | 14,957,986 | ||||||||||||
2,277,742 | $23,298,190 | 4,328,182 | $44,218,610 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 659,519 | $6,727,090 | ||||||||||||
Service Class | — | — | 169,158 | 1,723,724 | ||||||||||||
— | $— | 828,677 | $8,450,814 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (3,683,104 | ) | $(37,702,648 | ) | (8,327,171 | ) | $(85,073,262 | ) | ||||||||
Service Class | (1,399,653 | ) | (14,292,761 | ) | (3,537,803 | ) | (36,086,199 | ) | ||||||||
(5,082,757 | ) | $(51,995,409 | ) | (11,864,974 | ) | $(121,159,461 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (2,123,843 | ) | $(21,742,493 | ) | (4,806,842 | ) | $(49,085,548 | ) | ||||||||
Service Class | (681,172 | ) | (6,954,726 | ) | (1,901,273 | ) | (19,404,489 | ) | ||||||||
(2,805,015 | ) | $(28,697,219 | ) | (6,708,115 | ) | $(68,490,037 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Conservative Allocation Portfolio, the MFS Moderate Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 12%, 11%, and 1%, respectively, of the value of outstanding voting shares of the fund.
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Notes to Financial Statements (unaudited) – continued
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $2,174 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 23,249,759 | 148,581,660 | (159,702,116 | ) | 12,129,303 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $(3,252 | ) | $— | $59,676 | $12,129,303 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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MFS Limited Maturity Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® MID CAP VALUE PORTFOLIO
MFS® Variable Insurance Trust III
VMC-SEM
Table of Contents
MFS® MID CAP VALUE PORTFOLIO
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
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MFS Mid Cap Value Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure
Top ten holdings | ||||
Hartford Financial Services Group, Inc. | 1.4% | |||
Fifth Third Bancorp | 1.3% | |||
Zimmer Biomet Holdings, Inc. | 1.2% | |||
Pinnacle Foods, Inc. | 1.1% | |||
Stanley Black & Decker, Inc. | 1.1% | |||
NASDAQ, Inc. | 1.1% | |||
XL Group Ltd. | 1.1% | |||
Huntington Bancshares, Inc. | 1.1% | |||
KeyCorp | 1.1% | |||
Newell Brands, Inc. | 1.1% |
Equity sectors | ||||
Financial Services | 27.6% | |||
Industrial Goods & Services | 8.4% | |||
Utilities & Communications | 7.7% | |||
Health Care | 7.2% | |||
Autos & Housing | 7.0% | |||
Consumer Staples | 7.0% | |||
Energy | 7.0% | |||
Technology | 6.8% | |||
Basic Materials | 6.6% | |||
Special Products & Services | 4.2% | |||
Retailing | 3.4% | |||
Transportation | 3.0% | |||
Leisure | 2.8% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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MFS Mid Cap Value Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.81% | $1,000.00 | $1,060.31 | $4.14 | |||||||||||||
Hypothetical (h) | 0.81% | $1,000.00 | $1,020.78 | $4.06 | ||||||||||||||
Service Class | Actual | 1.06% | $1,000.00 | $1,059.61 | $5.41 | |||||||||||||
Hypothetical (h) | 1.06% | $1,000.00 | $1,019.54 | $5.31 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 98.7% | ||||||||
Aerospace – 2.4% | ||||||||
L3 Technologies, Inc. | 20,114 | $ | 3,360,647 | |||||
Leidos Holdings, Inc. | 36,965 | 1,910,721 | ||||||
Rockwell Collins, Inc. | 25,373 | 2,666,195 | ||||||
|
| |||||||
$ | 7,937,563 | |||||||
|
| |||||||
Airlines – 1.3% | ||||||||
Alaska Air Group, Inc. | 17,656 | $ | 1,584,803 | |||||
Delta Air Lines, Inc. | 52,614 | 2,827,476 | ||||||
|
| |||||||
$ | 4,412,279 | |||||||
|
| |||||||
Alcoholic Beverages – 0.6% | ||||||||
Molson Coors Brewing Co. | 24,269 | $ | 2,095,385 | |||||
|
| |||||||
Apparel Manufacturers – 1.3% | ||||||||
Hanesbrands, Inc. | 83,156 | $ | 1,925,893 | |||||
PVH Corp. | 21,839 | 2,500,566 | ||||||
|
| |||||||
$ | 4,426,459 | |||||||
|
| |||||||
Automotive – 2.9% | ||||||||
Delphi Automotive PLC | 35,648 | $ | 3,124,547 | |||||
Goodyear Tire & Rubber Co. | 59,215 | 2,070,156 | ||||||
Harley-Davidson, Inc. | 32,284 | 1,743,982 | ||||||
LKQ Corp. (a) | 83,747 | 2,759,464 | ||||||
|
| |||||||
$ | 9,698,149 | |||||||
|
| |||||||
Broadcasting – 0.7% | ||||||||
Interpublic Group of Companies, Inc. | 100,326 | $ | 2,468,020 | |||||
|
| |||||||
Brokerage & Asset Managers – 4.3% | ||||||||
Affiliated Managers Group, Inc. | 8,250 | $ | 1,368,345 | |||||
Apollo Global Management LLC, “A” | 68,255 | 1,805,345 | ||||||
Invesco Ltd. | 51,139 | 1,799,581 | ||||||
NASDAQ, Inc. | 53,069 | 3,793,903 | ||||||
Raymond James Financial, Inc. | 41,774 | 3,351,110 | ||||||
TD Ameritrade Holding Corp. | 51,840 | 2,228,602 | ||||||
|
| |||||||
$ | 14,346,886 | |||||||
|
| |||||||
Business Services – 4.3% | ||||||||
Amdocs Ltd. | 40,975 | $ | 2,641,249 | |||||
Brenntag AG | 23,058 | 1,334,693 | ||||||
Fidelity National Information Services, Inc. | 37,838 | 3,231,365 | ||||||
First Data Corp. (a) | 74,217 | 1,350,749 | ||||||
Global Payments, Inc. | 20,673 | 1,867,185 | ||||||
Jones Lang LaSalle, Inc. | 18,754 | 2,344,250 | ||||||
Realogy Holdings Corp. | 47,150 | 1,530,018 | ||||||
|
| |||||||
$ | 14,299,509 | |||||||
|
| |||||||
Cable TV – 0.3% | ||||||||
Altice USA, Inc. (a) | 32,452 | $ | 1,048,200 | |||||
|
| |||||||
Chemicals – 2.4% | ||||||||
Celanese Corp. | 31,186 | $ | 2,960,799 | |||||
FMC Corp. | 32,351 | 2,363,241 | ||||||
PPG Industries, Inc. | 23,600 | 2,595,056 | ||||||
|
| |||||||
$ | 7,919,096 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Computer Software – 1.7% | ||||||||
Check Point Software Technologies Ltd. (a) | 19,886 | $ | 2,169,165 | |||||
Sabre Corp. | 65,975 | 1,436,276 | ||||||
Symantec Corp. | 71,477 | 2,019,225 | ||||||
|
| |||||||
$ | 5,624,666 | |||||||
|
| |||||||
Computer Software – Systems – 2.4% | ||||||||
NCR Corp. (a) | 59,742 | $ | 2,439,863 | |||||
NICE Systems Ltd., ADR | 24,446 | 1,924,389 | ||||||
Pitney Bowes, Inc. | 86,481 | 1,305,863 | ||||||
Verint Systems, Inc. (a) | 25,587 | 1,041,391 | ||||||
Xerox Corp. | 48,505 | 1,393,549 | ||||||
|
| |||||||
$ | 8,105,055 | |||||||
|
| |||||||
Construction – 3.2% | ||||||||
Armstrong World Industries, Inc. (a) | 53,480 | $ | 2,460,080 | |||||
Owens Corning | 43,539 | 2,913,630 | ||||||
Stanley Black & Decker, Inc. | 27,036 | 3,804,776 | ||||||
Toll Brothers, Inc. | 43,587 | 1,722,122 | ||||||
|
| |||||||
$ | 10,900,608 | |||||||
|
| |||||||
Consumer Products – 1.9% | ||||||||
Coty, Inc., “A” | 81,666 | $ | 1,532,054 | |||||
Newell Brands, Inc. | 65,999 | 3,538,866 | ||||||
Sensient Technologies Corp. | 16,509 | 1,329,470 | ||||||
|
| |||||||
$ | 6,400,390 | |||||||
|
| |||||||
Containers – 2.0% | ||||||||
Berry Global Group, Inc. (a) | 43,885 | $ | 2,501,884 | |||||
Graphic Packaging Holding Co. | 158,988 | 2,190,855 | ||||||
Sealed Air Corp. | 46,213 | 2,068,494 | ||||||
|
| |||||||
$ | 6,761,233 | |||||||
|
| |||||||
Electrical Equipment – 1.3% | ||||||||
HDSupply Holdings, Inc. (a) | 41,644 | $ | 1,275,556 | |||||
Sensata Technologies Holding B.V. (a) | 47,542 | 2,030,994 | ||||||
WESCO International, Inc. (a) | 20,524 | 1,176,025 | ||||||
|
| |||||||
$ | 4,482,575 | |||||||
|
| |||||||
Electronics – 2.2% | ||||||||
Analog Devices, Inc. | 30,447 | $ | 2,368,777 | |||||
Keysight Technologies, Inc. (a) | 66,881 | 2,603,677 | ||||||
Maxim Integrated Products, Inc. | 55,254 | 2,480,905 | ||||||
|
| |||||||
$ | 7,453,359 | |||||||
|
| |||||||
Energy – Independent – 5.2% | ||||||||
Cabot Oil & Gas Corp. | 106,483 | $ | 2,670,594 | |||||
Cimarex Energy Co. | 12,682 | 1,192,235 | ||||||
Energen Corp. (a) | 44,035 | 2,174,008 | ||||||
EQT Corp. | 37,781 | 2,213,589 | ||||||
Hess Corp. | 51,112 | 2,242,283 | ||||||
HollyFrontier Corp. | 54,540 | 1,498,214 | ||||||
Noble Energy, Inc. | 26,751 | 757,053 | ||||||
Parsley Energy, Inc., “A” (a) | 31,114 | 863,414 | ||||||
PDC Energy, Inc. (a) | 32,393 | 1,396,462 |
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Table of Contents
MFS Mid Cap Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Energy – Independent – continued | ||||||||
Pioneer Natural Resources Co. | 15,498 | $ | 2,473,171 | |||||
|
| |||||||
$ | 17,481,023 | |||||||
|
| |||||||
Engineering – Construction – 0.5% | ||||||||
KBR, Inc. | 119,261 | $ | 1,815,152 | |||||
|
| |||||||
Entertainment – 0.3% | ||||||||
Madison Square Garden Co., “A” (a) | 4,937 | $ | 972,095 | |||||
|
| |||||||
Food & Beverages – 4.5% | ||||||||
Bunge Ltd. | 20,084 | $ | 1,498,266 | |||||
Cal-Maine Foods, Inc. (a)(l) | 19,985 | 791,406 | ||||||
Coca-Cola European Partners PLC | 54,226 | 2,205,371 | ||||||
J.M. Smucker Co. | 17,646 | 2,088,051 | ||||||
Pinnacle Foods, Inc. | 64,714 | 3,844,012 | ||||||
TreeHouse Foods, Inc. (a) | 26,030 | 2,126,391 | ||||||
Tyson Foods, Inc., “A” | 39,452 | 2,470,879 | ||||||
|
| |||||||
$ | 15,024,376 | |||||||
|
| |||||||
Food & Drug Stores – 0.4% | ||||||||
Kroger Co. | 52,231 | $ | 1,218,027 | |||||
|
| |||||||
Furniture & Appliances – 0.9% | ||||||||
Whirlpool Corp. | 16,093 | $ | 3,083,741 | |||||
|
| |||||||
Gaming & Lodging – 0.7% | ||||||||
Royal Caribbean Cruises Ltd. | 19,909 | $ | 2,174,660 | |||||
|
| |||||||
General Merchandise – 0.3% | ||||||||
Dollar Tree, Inc. (a) | 12,784 | $ | 893,857 | |||||
|
| |||||||
Insurance – 7.3% | ||||||||
Arthur J. Gallagher & Co. | 41,317 | $ | 2,365,398 | |||||
Everest Re Group Ltd. | 12,207 | 3,107,780 | ||||||
Hanover Insurance Group, Inc. | 20,747 | 1,838,807 | ||||||
Hartford Financial Services Group, Inc. | 90,014 | 4,732,036 | ||||||
Lincoln National Corp. | 44,669 | 3,018,731 | ||||||
Unum Group | 74,193 | 3,459,620 | ||||||
Validus Holdings Ltd. | 45,554 | 2,367,441 | ||||||
XL Group Ltd. | 86,241 | 3,777,356 | ||||||
|
| |||||||
$ | 24,667,169 | |||||||
|
| |||||||
Machinery & Tools – 3.3% | ||||||||
Deere & Co. | 21,423 | $ | 2,647,669 | |||||
Eaton Corp. PLC | 36,799 | 2,864,066 | ||||||
Gardner Denver Holdings, Inc. (a) | 50,819 | 1,098,199 | ||||||
ITT, Inc. | 50,955 | 2,047,372 | ||||||
Regal Beloit Corp. | 31,581 | 2,575,431 | ||||||
|
| |||||||
$ | 11,232,737 | |||||||
|
| |||||||
Major Banks – 3.2% | ||||||||
Comerica, Inc. | 47,230 | $ | 3,459,125 | |||||
Huntington Bancshares, Inc. | 277,701 | 3,754,518 | ||||||
KeyCorp | 192,005 | 3,598,174 | ||||||
|
| |||||||
$ | 10,811,817 | |||||||
|
| |||||||
Medical & Health Technology & Services – 3.1% | ||||||||
AmerisourceBergen Corp. | 27,780 | $ | 2,626,043 | |||||
LifePoint Health, Inc. (a) | 30,443 | 2,044,247 | ||||||
MEDNAX, Inc. (a) | 23,288 | 1,405,897 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Medical & Health Technology & Services – continued | ||||||||
Quest Diagnostics, Inc. | 24,647 | $ | 2,739,761 | |||||
Universal Health Services, Inc. | 13,490 | 1,646,859 | ||||||
|
| |||||||
$ | 10,462,807 | |||||||
|
| |||||||
Medical Equipment – 4.1% | ||||||||
Dentsply Sirona, Inc. | 30,048 | $ | 1,948,312 | |||||
PerkinElmer, Inc. | 46,235 | 3,150,453 | ||||||
Steris PLC | 33,041 | 2,692,842 | ||||||
Teleflex, Inc. | 9,252 | 1,922,196 | ||||||
Zimmer Biomet Holdings, Inc. | 30,717 | 3,944,063 | ||||||
|
| |||||||
$ | 13,657,866 | |||||||
|
| |||||||
Natural Gas – Distribution – 1.1% | ||||||||
NiSource, Inc. | 63,368 | $ | 1,607,012 | |||||
Sempra Energy | 18,960 | 2,137,740 | ||||||
|
| |||||||
$ | 3,744,752 | |||||||
|
| |||||||
Network & Telecom – 0.5% | ||||||||
Motorola Solutions, Inc. | 19,707 | $ | 1,709,385 | |||||
|
| |||||||
Oil Services – 1.8% | ||||||||
Forum Energy Technologies, Inc. (a) | 88,017 | $ | 1,373,065 | |||||
Frank’s International N.V. (l) | 177,442 | 1,470,994 | ||||||
Oil States International, Inc. (a) | 51,741 | 1,404,768 | ||||||
Superior Energy Services, Inc. (a) | 78,460 | 818,338 | ||||||
U.S. Silica Holdings, Inc. | 25,521 | 905,740 | ||||||
|
| |||||||
$ | 5,972,905 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 7.3% | ||||||||
Citizens Financial Group, Inc. | 95,967 | $ | 3,424,103 | |||||
Discover Financial Services | 53,086 | 3,301,418 | ||||||
Element Fleet Management Corp. | 148,611 | 1,019,924 | ||||||
Fifth Third Bancorp | 173,956 | 4,515,898 | ||||||
M&T Bank Corp. | 17,668 | 2,861,333 | ||||||
New York Community Bancorp, Inc. | 97,002 | 1,273,636 | ||||||
Northern Trust Corp. | 31,076 | 3,020,898 | ||||||
SunTrust Banks, Inc. | 49,914 | 2,831,122 | ||||||
Wintrust Financial Corp. | 31,329 | 2,394,789 | ||||||
|
| |||||||
$ | 24,643,121 | |||||||
|
| |||||||
Pollution Control – 0.8% | ||||||||
Clean Harbors, Inc. (a) | 50,300 | $ | 2,808,249 | |||||
|
| |||||||
Railroad & Shipping – 0.7% | ||||||||
Kansas City Southern Co. | 23,673 | $ | 2,477,379 | |||||
|
| |||||||
Real Estate – 5.5% | ||||||||
Annaly Mortgage Management, Inc., REIT | 110,404 | $ | 1,330,368 | |||||
EPR Properties, REIT | 33,345 | 2,396,505 | ||||||
Gramercy Property Trust, REIT | 66,665 | 1,980,617 | ||||||
Life Storage, Inc., REIT | 38,148 | 2,826,767 | ||||||
Medical Properties Trust, Inc., REIT | 234,871 | 3,022,790 | ||||||
Mid-America Apartment Communities, Inc., REIT | 22,642 | 2,386,014 | ||||||
Sun Communities, Inc., REIT | 21,691 | 1,902,084 | ||||||
Washington Prime Group, Inc., REIT | 77,250 | 646,583 | ||||||
Weyerhaeuser Co., REIT | 55,122 | 1,846,587 | ||||||
|
| |||||||
$ | 18,338,315 | |||||||
|
|
5
Table of Contents
MFS Mid Cap Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Restaurants – 0.8% | ||||||||
Aramark | 68,582 | $ | 2,810,490 | |||||
|
| |||||||
Specialty Chemicals – 2.2% | ||||||||
Axalta Coating Systems Ltd. (a) | 83,733 | $ | 2,682,805 | |||||
RPM International, Inc. | 44,622 | 2,434,130 | ||||||
Univar, Inc. (a) | 80,933 | 2,363,244 | ||||||
|
| |||||||
$ | 7,480,179 | |||||||
|
| |||||||
Specialty Stores – 1.5% | ||||||||
AutoZone, Inc. (a) | 1,771 | $ | 1,010,285 | |||||
Express, Inc. (a) | 65,609 | 442,861 | ||||||
Michaels Co., Inc. (a) | 67,055 | 1,241,859 | ||||||
Sally Beauty Holdings, Inc. (a) | 65,793 | 1,332,308 | ||||||
Urban Outfitters, Inc. (a) | 57,856 | 1,072,650 | ||||||
|
| |||||||
$ | 5,099,963 | |||||||
|
| |||||||
Trucking – 0.9% | ||||||||
Knight Transportation, Inc. | 49,219 | $ | 1,823,564 | |||||
Schneider National, Inc. | 58,105 | 1,299,809 | ||||||
|
| |||||||
$ | 3,123,373 | |||||||
|
| |||||||
Utilities – Electric Power – 6.6% | ||||||||
AES Corp. | 143,868 | $ | 1,598,373 | |||||
Ameren Corp. | 32,218 | 1,761,358 | ||||||
Calpine Corp. (a) | 119,505 | 1,616,903 | ||||||
CMS Energy Corp. | 65,654 | 3,036,492 | ||||||
DTE Energy Co. | 30,441 | 3,220,353 | ||||||
Eversource Energy | 48,584 | 2,949,535 | ||||||
Pinnacle West Capital Corp. | 35,076 | 2,987,072 | ||||||
Public Service Enterprise Group, Inc. | 62,021 | 2,667,523 | ||||||
WEC Energy Group, Inc. | 36,281 | 2,226,928 | ||||||
|
| |||||||
$ | 22,064,537 | |||||||
|
| |||||||
Total Common Stocks (Identified Cost, $252,451,565) | $ | 332,147,407 | ||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
MONEY MARKET FUNDS – 1.5% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $4,912,800) | 4,913,291 | $ | 4,913,291 | |||||
|
| |||||||
COLLATERAL FOR SECURITIES LOANED – 0.1% | ||||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 1% (j) (Identified Cost, $271,313) | 271,313 | $ | 271,313 | |||||
|
| |||||||
Total Investments (Identified Cost, $257,635,678) | $ | 337,332,011 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.3)% | (912,728 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 336,419,283 | ||||||
|
|
(a) | Non-income producing security. |
(j) | The rate quoted is the annualized seven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
6
Table of Contents
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $252,722,878) | $332,418,720 | |||
Underlying affiliated funds, at value (identified cost, $4,912,800) | 4,913,291 | |||
Total investments, at value, including $266,488 of securities on loan (identified cost, $257,635,678) | $337,332,011 | |||
Receivables for | ||||
Fund shares sold | 1,430 | |||
Interest and dividends | 420,124 | |||
Other assets | 1,312 | |||
Total assets | $337,754,877 | |||
Liabilities | ||||
Payable for fund shares reacquired | $1,001,322 | |||
Collateral for securities loaned, at value | 271,313 | |||
Payable to affiliates | ||||
Investment adviser | 14,033 | |||
Shareholder servicing costs | 74 | |||
Distribution and/or service fees | 878 | |||
Payable for independent Trustees’ compensation | 288 | |||
Accrued expenses and other liabilities | 47,686 | |||
Total liabilities | $1,335,594 | |||
Net assets | $336,419,283 | |||
Net assets consist of | ||||
Paid-in capital | $234,126,849 | |||
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 79,696,016 | |||
Accumulated net realized gain (loss) on investments and foreign currency | 16,839,063 | |||
Undistributed net investment income | 5,757,355 | |||
Net assets | $336,419,283 | |||
Shares of beneficial interest outstanding | 38,335,080 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $272,270,537 | 30,968,435 | $8.79 | |||||||||
Service Class | 64,148,746 | 7,366,645 | 8.71 |
See Notes to Financial Statements
7
Table of Contents
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment income | ||||
Income | ||||
Dividends | $2,894,406 | |||
Interest | 7,081 | |||
Dividends from underlying affiliated funds | 17,451 | |||
Foreign taxes withheld | (10,594 | ) | ||
Total investment income | $2,908,344 | |||
Expenses | ||||
Management fee | $1,244,706 | |||
Distribution and/or service fees | 77,463 | |||
Shareholder servicing costs | 7,655 | |||
Administrative services fee | 31,509 | |||
Independent Trustees’ compensation | 4,599 | |||
Custodian fee | 9,150 | |||
Shareholder communications | 16,181 | |||
Audit and tax fees | 26,773 | |||
Legal fees | 1,793 | |||
Miscellaneous | 7,338 | |||
Total expenses | $1,427,167 | |||
Reduction of expenses by investment adviser | (12,734 | ) | ||
Net expenses | $1,414,433 | |||
Net investment income | $1,493,911 | |||
Realized and unrealized gain (loss) on investments and foreign currency | ||||
Realized gain (loss) (identified cost basis) | ||||
Investments: | ||||
Non-affiliated issuers | $8,502,008 | |||
Underlying affiliated funds | (20 | ) | ||
Foreign currency | (60 | ) | ||
Net realized gain (loss) on investments and foreign currency | $8,501,928 | |||
Change in unrealized appreciation (depreciation) | ||||
Investments | $9,853,146 | |||
Translation of assets and liabilities in foreign currencies | 465 | |||
Net unrealized gain (loss) on investments and foreign currency translation | $9,853,611 | |||
Net realized and unrealized gain (loss) on investments and foreign currency | $18,355,539 | |||
Change in net assets from operations | $19,849,450 |
See Notes to Financial Statements
8
Table of Contents
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| Six months ended 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income | $1,493,911 | $4,102,943 | ||||||
Net realized gain (loss) on investments and foreign currency | 8,501,928 | 9,918,490 | ||||||
Net unrealized gain (loss) on investments and foreign currency translation | 9,853,611 | 35,069,272 | ||||||
Change in net assets from operations | $19,849,450 | $49,090,705 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(2,686,243 | ) | |||||
From net realized gain on investments | — | (26,538,253 | ) | |||||
Total distributions declared to shareholders | $— | $(29,224,496 | ) | |||||
Change in net assets from fund share transactions | $(13,976,794 | ) | $(19,173,427 | ) | ||||
Total change in net assets | $5,872,656 | $692,782 | ||||||
Net assets | ||||||||
At beginning of period | 330,546,627 | 329,853,845 | ||||||
At end of period (including undistributed net investment income of $5,757,355 and | $336,419,283 | $330,546,627 |
See Notes to Financial Statements
9
Table of Contents
MFS Mid Cap Value Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $8.29 | $7.84 | $9.80 | $10.05 | $8.75 | $8.66 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.04 | $0.10 | (c) | $0.08 | $0.09 | $0.10 | $0.16 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.46 | 1.12 | (0.37 | ) | 0.93 | 2.93 | 1.27 | |||||||||||||||||
Total from investment operations | $0.50 | $1.22 | $(0.29 | ) | $1.02 | $3.03 | $1.43 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.07 | ) | $(0.10 | ) | $(0.11 | ) | $(0.12 | ) | $(0.10 | ) | |||||||||||||
From net realized gain on investments | — | (0.70 | ) | (1.57 | ) | (1.16 | ) | (1.61 | ) | (1.24 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.77 | ) | $(1.67 | ) | $(1.27 | ) | $(1.73 | ) | $(1.34 | ) | |||||||||||||
Net asset value, end of period (x) | $8.79 | $8.29 | $7.84 | $9.80 | $10.05 | $8.75 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.03 | (n) | 15.98 | (c) | (2.33 | ) | 10.36 | 36.91 | 16.38 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.81 | (a) | 0.77 | (c) | 0.82 | 0.81 | 0.81 | 1.03 | ||||||||||||||||
Expenses after expense reductions (f) | 0.81 | (a) | 0.76 | (c) | 0.81 | 0.81 | 0.81 | N/A | ||||||||||||||||
Net investment income | 0.94 | (a) | 1.31 | (c) | 0.82 | 0.86 | 0.99 | 1.72 | ||||||||||||||||
Portfolio turnover | 16 | (n) | 32 | 51 | 55 | 49 | 229 | |||||||||||||||||
Net assets at end of period (000 omitted) | $272,271 | $271,001 | $274,753 | $322,888 | $348,322 | $324,322 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $8.22 | $7.78 | $9.74 | $9.99 | $8.71 | $8.63 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.03 | $0.08 | (c) | $0.06 | $0.06 | $0.07 | $0.13 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments | 0.46 | 1.12 | (0.38 | ) | 0.93 | 2.92 | 1.27 | |||||||||||||||||
Total from investment operations | $0.49 | $1.20 | $(0.32 | ) | $0.99 | $2.99 | $1.40 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.06 | ) | $(0.07 | ) | $(0.08 | ) | $(0.10 | ) | $(0.08 | ) | |||||||||||||
From net realized gain on investments | — | (0.70 | ) | (1.57 | ) | (1.16 | ) | (1.61 | ) | (1.24 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.76 | ) | $(1.64 | ) | $(1.24 | ) | $(1.71 | ) | $(1.32 | ) | |||||||||||||
Net asset value, end of period (x) | $8.71 | $8.22 | $7.78 | $9.74 | $9.99 | $8.71 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 5.96 | (n) | 15.76 | (c) | (2.66 | ) | 10.16 | 36.52 | 16.01 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.06 | (a) | 1.02 | (c) | 1.07 | 1.06 | 1.06 | 1.29 | ||||||||||||||||
Expenses after expense reductions (f) | 1.06 | (a) | 1.01 | (c) | 1.06 | 1.06 | 1.06 | N/A | ||||||||||||||||
Net investment income | 0.70 | (a) | 1.06 | (c) | 0.62 | 0.62 | 0.75 | 1.38 | ||||||||||||||||
Portfolio turnover | 16 | (n) | 32 | 51 | 55 | 49 | 229 | |||||||||||||||||
Net assets at end of period (000 omitted) | $64,149 | $59,545 | $55,100 | $38,611 | $38,371 | $31,550 |
See Notes to Financial Statements
10
Table of Contents
MFS Mid Cap Value Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
11
Table of Contents
MFS Mid Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Mid Cap Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and
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Notes to Financial Statements (unaudited) – continued
at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $332,147,407 | $— | $— | $332,147,407 | ||||||||||||
Mutual Funds | 5,184,604 | — | — | 5,184,604 | ||||||||||||
Total Investments | $337,332,011 | $— | $— | $337,332,011 |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 1 investments presented above, equity investments amounting to $1,334,693 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued using other observable market-based inputs. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. In the event of Borrower default, State Street will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, State Street assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, State Street is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $266,488. The fair value of the fund’s investment securities on loan and a related liability of $271,313 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral received on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
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Notes to Financial Statements (unaudited) – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend 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 fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $9,712,780 | |||
Long-term capital gains | 19,511,716 | |||
Total distributions | $29,224,496 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $259,601,258 | |||
Gross appreciation | 87,047,440 | |||
Gross depreciation | (9,316,687 | ) | ||
Net unrealized appreciation (depreciation) | $77,730,753 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 4,751,154 | |||
Undistributed long-term capital gain | 9,433,198 | |||
Other temporary differences | 151,050 | |||
Net unrealized appreciation (depreciation) | 68,107,582 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share
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Notes to Financial Statements (unaudited) – continued
dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $2,295,049 | $— | $21,855,898 | ||||||||||||
Service Class | — | 391,194 | — | 4,682,355 | ||||||||||||
Total | $— | $2,686,243 | $— | $26,538,253 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
First $1 billion of average daily net assets | 0.75% | |||
Average daily net assets in excess of $1 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $12,734, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.74% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $6,746, which equated to 0.0041% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $909.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0190% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $303 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
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Notes to Financial Statements (unaudited) – continued
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of investments, other short-term obligations, aggregated $53,527,985 and $66,520,877, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 792,962 | $6,828,193 | 2,201,765 | $17,138,283 | ||||||||||||
Service Class | 544,830 | 4,628,325 | �� | 978,217 | 7,813,669 | |||||||||||
1,337,792 | $11,456,518 | 3,179,982 | $24,951,952 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 3,041,641 | $24,150,626 | ||||||||||||
Service Class | — | — | 643,851 | 5,073,549 | ||||||||||||
— | $— | 3,685,492 | $29,224,175 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (2,533,911 | ) | $(21,816,456 | ) | (7,599,621 | ) | $(61,741,837 | ) | ||||||||
Service Class | (425,399 | ) | (3,616,856 | ) | (1,455,995 | ) | (11,607,717 | ) | ||||||||
(2,959,310 | ) | $(25,433,312 | ) | (9,055,616 | ) | $(73,349,554 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (1,740,949 | ) | $(14,988,263 | ) | (2,356,215 | ) | $(20,452,928 | ) | ||||||||
Service Class | 119,431 | 1,011,469 | 166,073 | 1,279,501 | ||||||||||||
(1,621,518 | ) | $(13,976,794 | ) | (2,190,142 | ) | $(19,173,427 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 36%, 11%, and 7%, respectively, of the value of outstanding voting shares of the fund.
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $1,134 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 4,336,715 | 38,460,089 | (37,883,513 | ) | 4,913,291 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $(20 | ) | $— | $17,451 | $4,913,291 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® MODERATE ALLOCATION PORTFOLIO
MFS® Variable Insurance Trust III
VMA-SEM
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MFS® MODERATE ALLOCATION PORTFOLIO
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
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MFS Moderate Allocation Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio target allocation
Portfolio holdings | ||||
MFS Total Return Bond Series | 12.0% | |||
MFS Government Securities Portfolio | 10.0% | |||
MFS Value Series | 9.1% | |||
MFS Growth Series | 8.9% | |||
MFS Research Series | 8.0% | |||
MFS Mid Cap Value Portfolio | 7.1% | |||
MFS Mid Cap Growth Series | 7.0% | |||
MFS Research International Portfolio | 6.9% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 5.0% | |||
MFS Global Governments Portfolio | 4.9% | |||
MFS Limited Maturity Portfolio | 4.0% | |||
MFS Global Real Estate Portfolio | 3.0% | |||
MFS International Value Portfolio | 3.0% | |||
MFS International Growth Portfolio | 3.0% | |||
MFS New Discovery Value Portfolio | 1.5% | |||
MFS New Discovery Series | 1.5% | |||
Cash & Cash Equivalents | 0.1% |
Portfolio actual allocation
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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MFS Moderate Allocation Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Because the underlying funds have varied expenses and fee levels and the fund may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. If these indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.01% | $1,000.00 | $1,084.90 | $0.05 | |||||||||||||
Hypothetical (h) | 0.01% | $1,000.00 | $1,024.74 | $0.05 | ||||||||||||||
Service Class | Actual | 0.26% | $1,000.00 | $1,083.33 | $1.34 | |||||||||||||
Hypothetical (h) | 0.26% | $1,000.00 | $1,023.51 | $1.30 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
UNDERLYING AFFILIATED FUNDS – 99.9% | ||||||||
MFS Global Governments Portfolio – Initial Class (a) | 8,316,063 | $ | 85,572,292 | |||||
MFS Global Real Estate Portfolio – Initial Class | 3,446,552 | 51,594,887 | ||||||
MFS Government Securities Portfolio – Initial Class | 13,504,263 | 171,639,179 | ||||||
MFS Growth Series – Initial Class | 3,381,134 | 153,672,521 | ||||||
MFS High Yield Portfolio – Initial Class | 14,267,083 | 86,173,181 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class (a) | 8,294,252 | 85,679,622 | ||||||
MFS International Growth Portfolio – Initial Class | 3,538,882 | 51,278,399 | ||||||
MFS International Value Portfolio – Initial Class | 1,958,527 | 51,332,987 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 6,675,923 | 68,695,244 | ||||||
MFS Mid Cap Growth Series – Initial Class | 13,168,471 | 120,359,827 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 13,776,977 | 121,099,629 | ||||||
MFS New Discovery Series – Initial Class | 1,435,642 | 25,784,134 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 2,312,702 | 25,925,389 | ||||||
MFS Research International Portfolio – Initial Class | 7,618,202 | 119,910,500 | ||||||
MFS Research Series – Initial Class | 4,746,956 | 137,946,532 | ||||||
MFS Total Return Bond Series – Initial Class | 15,317,265 | 206,323,566 | ||||||
MFS Value Series – Initial Class | 7,541,587 | 155,507,530 | ||||||
|
| |||||||
Total Underlying Affiliated Funds (Identified Cost, $1,473,480,394) | $ | 1,718,495,419 | ||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
MONEY MARKET FUNDS – 0.0% | ||||||||
MFS Institutional Money Market Portfolio, 0.98% (v) (Identified Cost, $548,054) | 548,054 | $ | 548,054 | |||||
|
| |||||||
Total Investments (Identified Cost, $1,474,028,448) | $ | 1,719,043,473 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 0.1% | 924,900 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 1,719,968,373 | ||||||
|
|
(a) | Non-income producing security. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Underlying affiliated funds, at value (identified cost, $1,474,028,448) | $1,719,043,473 | |||
Receivables for | ||||
Investments sold | 2,723,299 | |||
Fund shares sold | 2,123 | |||
Other assets | 5,737 | |||
Total assets | $1,721,774,632 | |||
Liabilities | ||||
Payable for fund shares reacquired | $1,717,502 | |||
Payable to affiliates | ||||
Administrator | 96 | |||
Shareholder servicing costs | 180 | |||
Distribution and/or service fees | 23,560 | |||
Payable for independent Trustees’ compensation | 857 | |||
Accrued expenses and other liabilities | 64,064 | |||
Total liabilities | $1,806,259 | |||
Net assets | $1,719,968,373 | |||
Net assets consist of | ||||
Paid-in capital | $1,367,228,824 | |||
Unrealized appreciation (depreciation) on investments | 245,015,025 | |||
Accumulated net realized gain (loss) on investments | 79,373,670 | |||
Undistributed net investment income | 28,350,854 | |||
Net assets | $1,719,968,373 | |||
Shares of beneficial interest outstanding | 129,685,699 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $5,759,808 | 433,262 | $13.29 | |||||||||
Service Class | 1,714,208,565 | 129,252,437 | 13.26 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment loss | ||||
Dividends from underlying affiliated funds | $2,676 | |||
Expenses | ||||
Distribution and/or service fees | 2,142,462 | |||
Shareholder servicing costs | 17,200 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 16,447 | |||
Custodian fee | 14,465 | |||
Shareholder communications | 24,633 | |||
Audit and tax fees | 19,062 | |||
Legal fees | 9,357 | |||
Miscellaneous | 17,258 | |||
Total expenses | $2,269,563 | |||
Net investment loss | $(2,266,887 | ) | ||
Realized and unrealized gain (loss) on investments | ||||
Realized gain (loss) on investments in underlying affiliated funds (identified cost basis) | $19,816,447 | |||
Change in unrealized appreciation (depreciation) on investments | $121,864,245 | |||
Net realized and unrealized gain (loss) on investments | $141,680,692 | |||
Change in net assets from operations | $139,413,805 |
See Notes to Financial Statements
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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 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(2,266,887 | ) | $30,617,893 | |||||
Net realized gain (loss) on investments | 19,816,447 | 63,702,612 | ||||||
Net unrealized gain (loss) on investments | 121,864,245 | 8,213,774 | ||||||
Change in net assets from operations | $139,413,805 | $102,534,279 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(45,218,025 | ) | |||||
From net realized gain on investments | — | (87,880,903 | ) | |||||
Total distributions declared to shareholders | $— | $(133,098,928 | ) | |||||
Change in net assets from fund share transactions | $(146,302,016 | ) | $(85,217,568 | ) | ||||
Total change in net assets | $(6,888,211 | ) | $(115,782,217 | ) | ||||
Net assets | ||||||||
At beginning of period | 1,726,856,584 | 1,842,638,801 | ||||||
At end of period (including undistributed net investment income of $28,350,854 and | $1,719,968,373 | $1,726,856,584 |
See Notes to Financial Statements
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FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $12.25 | $12.48 | $13.34 | $13.02 | $12.20 | $11.60 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d)(l) | $(0.00 | )(w) | $0.24 | (c) | $0.29 | $0.21 | $0.09 | $0.31 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.04 | 0.55 | (0.27 | ) | 0.48 | 1.88 | 0.92 | |||||||||||||||||
Total from investment operations | $1.04 | $0.79 | $0.02 | $0.69 | $1.97 | $1.23 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.37 | ) | $(0.55 | ) | $(0.21 | ) | $(0.35 | ) | $(0.32 | ) | |||||||||||||
From net realized gain on investments | — | (0.65 | ) | (0.33 | ) | (0.16 | ) | (0.80 | ) | (0.31 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.02 | ) | $(0.88 | ) | $(0.37 | ) | $(1.15 | ) | $(0.63 | ) | |||||||||||||
Net asset value, end of period (x) | $13.29 | $12.25 | $12.48 | $13.34 | $13.02 | $12.20 | ||||||||||||||||||
Total return (%) (k)(s)(x) | 8.49 | (n) | 6.16 | (c) | 0.35 | 5.28 | 16.87 | 10.56 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.01 | (a) | 0.02 | (c) | 0.01 | 0.01 | 0.02 | 0.15 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.01 | 0.02 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.01 | )(a) | 1.95 | (c) | 2.16 | 1.55 | 0.73 | 2.52 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 0 | (b) | 1 | 2 | 6 | 67 | ||||||||||||||||
Net assets at end of period (000 omitted) | $5,760 | $5,460 | $5,509 | $7,240 | $6,124 | $4,279 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $12.24 | $12.47 | $13.32 | $13.00 | $12.19 | $11.58 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.21 | (c) | $0.22 | $0.17 | $0.10 | $0.19 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.04 | 0.54 | (0.23 | ) | 0.49 | 1.82 | 1.02 | |||||||||||||||||
Total from investment operations | $1.02 | $0.75 | $(0.01 | ) | $0.66 | $1.92 | $1.21 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.33 | ) | $(0.51 | ) | $(0.18 | ) | $(0.31 | ) | $(0.29 | ) | |||||||||||||
From net realized gain on investments | — | (0.65 | ) | (0.33 | ) | (0.16 | ) | (0.80 | ) | (0.31 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.98 | ) | $(0.84 | ) | $(0.34 | ) | $(1.11 | ) | $(0.60 | ) | |||||||||||||
Net asset value, end of period (x) | $13.26 | $12.24 | $12.47 | $13.32 | $13.00 | $12.19 | ||||||||||||||||||
Total return (%) (k)(s)(x) | 8.33 | (n) | 5.87 | (c) | 0.13 | 5.04 | 16.51 | 10.39 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.26 | (a) | 0.27 | (c) | 0.26 | 0.26 | 0.27 | 0.40 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | 0.26 | 0.27 | N/A | ||||||||||||||||||
Net investment income (loss) (l) | (0.26 | )(a) | 1.71 | (c) | 1.69 | 1.29 | 0.76 | 1.55 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 0 | (b) | 1 | 2 | 6 | 67 | ||||||||||||||||
Net assets at end of period (000 omitted) | $1,714,209 | $1,721,397 | $1,837,130 | $2,121,968 | $2,199,921 | $1,986,278 |
See Notes to Financial Statements
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Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies, underlying fund selections, and underlying fund target weightings of the fund.
(a) | Annualized. |
(b) | Less than 0.5%. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(l) | Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by the underlying affiliated funds in which the fund invests and for interim net investment income ratios, the actual annual net investment income ratio may differ. The ratios and per share amounts do not include net investment income of the underlying affiliated funds in which the fund invests. |
(n) | Not annualized. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(w) | Per share amount was less than $0.01. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Moderate Allocation Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in 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. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. The value of these securities may depend, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due and that value may fall if an issuer or borrower defaults on its obligation to pay principal or interest or if the instrument’s credit rating is downgraded by a credit rating agency. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling 1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov or at the SEC’s public reference room in Washington, D.C. The underlying funds’ shareholder reports are not covered by this report.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Investment Valuations – Open-end investment companies (underlying funds) are generally valued at their net asset value per share. The investments of underlying funds managed by the adviser are valued as described below. For purposes of this policy disclosure, “fund” also refers to the underlying funds in which the fund-of-funds invests.
Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities held short, for which there were no sales reported for that day, are generally valued at the last quoted daily ask quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are
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Notes to Financial Statements (unaudited) – continued
generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Swap agreements are generally valued at valuations provided by a third-party pricing service, which for cleared swaps includes an evaluation of any trading activity at the clearinghouses. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $1,719,043,473 | $— | $— | $1,719,043,473 |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the underlying funds’ shareholder reports for further information regarding the levels used in valuing the underlying funds’ assets or liabilities.
Derivatives – The fund does not invest in derivatives directly. The fund does invest in underlying funds that may use derivatives for different purposes, primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
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MFS Moderate Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on an accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on the ex-dividend date. Recognition of net investment income by the fund is affected by the timing of the declaration of distributions by the underlying funds in which the fund invests. In determining the net gain or loss on securities sold, the cost of securities is determined on the identified cost basis.
The fund and/or the underlying funds may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $49,140,721 | |||
Long-term capital gains | 83,958,207 | |||
Total distributions | $133,098,928 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $1,478,534,888 | |||
Gross appreciation | 256,874,969 | |||
Gross depreciation | (16,366,384 | ) | ||
Net unrealized appreciation (depreciation) | $240,508,585 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 32,259,171 | |||
Undistributed long-term capital gain | 62,422,233 | |||
Net unrealized appreciation (depreciation) | 118,644,340 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to
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Notes to Financial Statements (unaudited) – continued
shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $152,525 | $— | $266,787 | ||||||||||||
Service Class | — | 45,065,500 | — | 87,614,116 | ||||||||||||
Total | $— | $45,218,025 | $— | $87,880,903 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. MFS receives no compensation under this agreement; however MFS receives management fees from the underlying MFS funds.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, excluding distribution and/or service fees, interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses such as fees and expenses associated with investments in investment companies and other similar investment vehicles such that fund operating expenses do not exceed 0.20% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $16,899, which equated to 0.0020% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $301.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund pays an annual fixed amount of $17,500. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0010% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $1,626 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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Notes to Financial Statements (unaudited) – continued
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of shares of underlying funds aggregated $11,031 and $148,599,181, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 9,693 | $124,622 | 85,157 | $1,039,228 | ||||||||||||
Service Class | 496,077 | 6,249,594 | 1,977,620 | 24,655,966 | ||||||||||||
505,770 | $6,374,216 | 2,062,777 | $25,695,194 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 33,625 | $419,312 | ||||||||||||
Service Class | — | — | 10,639,905 | 132,679,616 | ||||||||||||
— | $— | 10,673,530 | $133,098,928 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (22,043 | ) | $(278,885 | ) | (114,455 | ) | $(1,410,022 | ) | ||||||||
Service Class | (11,894,746 | ) | (152,397,347 | ) | (19,341,246 | ) | (242,601,668 | ) | ||||||||
(11,916,789 | ) | $(152,676,232 | ) | (19,455,701 | ) | $(244,011,690 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (12,350 | ) | $(154,263 | ) | 4,327 | $48,518 | ||||||||||
Service Class | (11,398,669 | ) | (146,147,753 | ) | (6,723,721 | ) | (85,266,086 | ) | ||||||||
(11,411,019 | ) | $(146,302,016 | ) | (6,719,394 | ) | $(85,217,568 | ) |
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $6,043 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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Notes to Financial Statements (unaudited) – continued
(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
Underlying Affiliated Funds | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Global Governments Portfolio | 8,315,880 | 183 | — | 8,316,063 | ||||||||||||
MFS Global Real Estate Portfolio | 3,648,561 | 76 | (202,085 | ) | 3,446,552 | |||||||||||
MFS Government Securities Portfolio | 13,650,590 | 126 | (146,453 | ) | 13,504,263 | |||||||||||
MFS Growth Series | 4,003,623 | — | (622,489 | ) | 3,381,134 | |||||||||||
MFS High Yield Portfolio | 15,126,893 | 55 | (859,865 | ) | 14,267,083 | |||||||||||
MFS Inflation-Adjusted Bond Portfolio | 8,476,016 | 214 | (181,978 | ) | 8,294,252 | |||||||||||
MFS Institutional Money Market Portfolio | 524,356 | 30,773,652 | (30,749,954 | ) | 548,054 | |||||||||||
MFS International Growth Portfolio | 4,199,366 | — | (660,484 | ) | 3,538,882 | |||||||||||
MFS International Value Portfolio | 2,258,605 | — | (300,078 | ) | 1,958,527 | |||||||||||
MFS Limited Maturity Portfolio | 6,820,652 | 118 | (144,847 | ) | 6,675,923 | |||||||||||
MFS Mid Cap Growth Series | 15,257,914 | — | (2,089,443 | ) | 13,168,471 | |||||||||||
MFS Mid Cap Value Portfolio | 14,901,132 | 169 | (1,124,324 | ) | 13,776,977 | |||||||||||
MFS New Discovery Series | 1,617,929 | 1 | (182,288 | ) | 1,435,642 | |||||||||||
MFS New Discovery Value Portfolio | 2,488,746 | 101 | (176,145 | ) | 2,312,702 | |||||||||||
MFS Research International Portfolio | 8,963,689 | — | (1,345,487 | ) | 7,618,202 | |||||||||||
MFS Research Series | 5,361,202 | — | (614,246 | ) | 4,746,956 | |||||||||||
MFS Total Return Bond Series | 15,736,748 | 1 | (419,484 | ) | 15,317,265 | |||||||||||
MFS Value Series | 8,369,610 | — | (828,023 | ) | 7,541,587 | |||||||||||
Underlying Affiliated Funds | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Global Governments Portfolio | $— | $— | $— | $85,572,292 | ||||||||||||
MFS Global Real Estate Portfolio | 135,734 | — | — | 51,594,887 | ||||||||||||
MFS Government Securities Portfolio | (124,558 | ) | — | — | 171,639,179 | |||||||||||
MFS Growth Series | 6,747,951 | — | — | 153,672,521 | ||||||||||||
MFS High Yield Portfolio | (281,921 | ) | — | — | 86,173,181 | |||||||||||
MFS Inflation-Adjusted Bond Portfolio | (127,719 | ) | — | — | 85,679,622 | |||||||||||
MFS Institutional Money Market Portfolio | (79 | ) | — | 2,676 | 548,054 | |||||||||||
MFS International Growth Portfolio | 826,355 | — | — | 51,278,399 | ||||||||||||
MFS International Value Portfolio | 2,233,330 | — | — | 51,332,987 | ||||||||||||
MFS Limited Maturity Portfolio | (1,574 | ) | — | — | 68,695,244 | |||||||||||
MFS Mid Cap Growth Series | 2,721,717 | — | — | 120,359,827 | ||||||||||||
MFS Mid Cap Value Portfolio | 170,940 | — | — | 121,099,629 | ||||||||||||
MFS New Discovery Series | 101,984 | — | — | 25,784,134 | ||||||||||||
MFS New Discovery Value Portfolio | 235,864 | — | — | 25,925,389 | ||||||||||||
MFS Research International Portfolio | 2,160,907 | — | — | 119,910,500 | ||||||||||||
MFS Research Series | 1,701,758 | — | — | 137,946,532 | ||||||||||||
MFS Total Return Bond Series | (249,118 | ) | — | — | 206,323,566 | |||||||||||
MFS Value Series | 3,564,876 | — | — | 155,507,530 | ||||||||||||
$19,816,447 | $— | $2,676 | $1,719,043,473 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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SEMIANNUAL REPORT
June 30, 2017
MFS® NEW DISCOVERY VALUE PORTFOLIO
MFS® Variable Insurance Trust III
VDV-SEM
Table of Contents
MFS® NEW DISCOVERY VALUE PORTFOLIO
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
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MFS New Discovery Value Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Despite policy uncertainty accompanying a new presidential administration in the United States and unease over ongoing Brexit negotiations, most markets have proved resilient. U.S. share prices have reached new highs. The U.S. Federal Reserve has continued to gradually hike interest rates. However, rates in most developed markets remain very low, with major non-U.S. central banks just beginning to contemplate curbing accommodative monetary policies.
Globally, economic growth has shown signs of recovery, led by China, the U.S. and the eurozone. Despite better growth, there are few immediate signs of worrisome inflation as wage growth remains muted. Europe has benefited from diminishing event risks as establishment candidates won both the Dutch and French elections, averting a feared populist trend. Emerging market economies are recovering at a somewhat slower pace amid fears that restrictive U.S. trade policies could further hamper the restrained pace of global trade growth. Looking ahead, markets will have to contend with issues involving geopolitical hot spots on the Korean peninsula and in the Middle East, which could potentially lead to a clash of interests between the U.S. and other major powers such as China or Russia.
At MFS®, we believe time is an asset. A patient, long-term approach to investing can have a powerful impact on decision making and outcomes. Time arbitrage, as we call it, simply comes down to having the conviction and discipline to allow enough time for good investment ideas to play out. In our view, such an approach, along with the professional guidance of a financial advisor, will help you reach your investment objectives.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2017
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure
Top ten holdings | ||||
El Paso Electric Co. | 2.0% | |||
PNM Resources, Inc. | 1.7% | |||
Portland General Electric Co. | 1.7% | |||
Plexus Corp. | 1.5% | |||
First Interstate BancSystem, Inc. | 1.4% | |||
Medical Properties Trust, Inc., REIT | 1.4% | |||
Select Income, REIT | 1.4% | |||
Toll Brothers, Inc. | 1.4% | |||
Everest Re Group Ltd. | 1.3% | |||
Ferro Corp. | 1.3% |
Equity sectors | ||||
Financial Services | 33.8% | |||
Industrial Goods & Services | 12.3% | |||
Basic Materials | 7.0% | |||
Technology | 7.0% | |||
Health Care | 6.4% | |||
Utilities & Communications | 6.4% | |||
Autos & Housing | 5.6% | |||
Energy | 4.2% | |||
Special Products & Services | 3.9% | |||
Transportation | 3.1% | |||
Leisure | 3.0% | |||
Consumer Staples | 2.9% | |||
Retailing | 2.4% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Percentages are based on net assets as of June 30, 2017.
The portfolio is actively managed and current holdings may be different.
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MFS New Discovery Value Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2017 through June 30, 2017
As a contract holder of the fund, you incur ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2017 through June 30, 2017.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight the fund’s ongoing costs only and do not take into account the fees and expenses imposed under the variable contracts through which your investment in the fund is made. Therefore, the second line for each share class in the table is useful in comparing ongoing costs associated with an investment in vehicles (such as the fund) which fund benefits under variable annuity and variable life insurance contracts and to qualified pension and retirement plans only, and will not help you determine the relative total costs of investing in the fund through variable annuity and variable life insurance contracts. If the fees and expenses imposed under the variable contracts were included, your costs would have been higher.
Share Class | Annualized Expense Ratio | Beginning Account Value 1/01/17 | Ending Account Value 6/30/17 | Expenses Paid During Period (p) 1/01/17-6/30/17 | ||||||||||||||
Initial Class | Actual | 0.88% | $1,000.00 | $1,038.93 | $4.45 | |||||||||||||
Hypothetical (h) | 0.88% | $1,000.00 | $1,020.43 | $4.41 | ||||||||||||||
Service Class | Actual | 1.13% | $1,000.00 | $1,038.25 | $5.71 | |||||||||||||
Hypothetical (h) | 1.13% | $1,000.00 | $1,019.19 | $5.66 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/17 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 98.0% | ||||||||
Aerospace – 1.9% | ||||||||
Leidos Holdings, Inc. | 7,873 | $ | 406,955 | |||||
ManTech International Corp., “A” | 16,310 | 674,908 | ||||||
|
| |||||||
$ | 1,081,863 | |||||||
|
| |||||||
Automotive – 0.0% | ||||||||
Fenix Parts, Inc. (a) | 57,517 | $ | 27,033 | |||||
|
| |||||||
Brokerage & Asset Managers – 2.7% | ||||||||
Apollo Global Management LLC, “A” | 25,776 | $ | 681,775 | |||||
NASDAQ, Inc. | 5,942 | 424,794 | ||||||
Raymond James Financial, Inc. | 5,333 | 427,813 | ||||||
|
| |||||||
$ | 1,534,382 | |||||||
|
| |||||||
Business Services – 2.7% | ||||||||
Conduent, Inc. (a) | 17,572 | $ | 280,098 | |||||
Forrester Research, Inc. | 6,522 | 255,336 | ||||||
PRA Group, Inc. (a) | 9,114 | 345,421 | ||||||
Travelport Worldwide Ltd. | 48,375 | 665,640 | ||||||
|
| |||||||
$ | 1,546,495 | |||||||
|
| |||||||
Chemicals – 0.5% | ||||||||
Ingevity Corp. (a) | 5,414 | $ | 310,764 | |||||
|
| |||||||
Computer Software – Systems – 3.7% | ||||||||
Model N, Inc. (a) | 30,184 | $ | 401,447 | |||||
NICE Systems Ltd., ADR | 8,630 | 679,354 | ||||||
Presidio, Inc. (a)(l) | 27,198 | 389,203 | ||||||
Verint Systems, Inc. (a) | 16,967 | 690,557 | ||||||
|
| |||||||
$ | 2,160,561 | |||||||
|
| |||||||
Construction – 5.6% | ||||||||
Armstrong World Industries, Inc. (a) | 9,492 | $ | 436,632 | |||||
GMS, Inc. (a) | 12,129 | 340,825 | ||||||
Owens Corning | 10,255 | 686,265 | ||||||
Siteone Landscape Supply, Inc. (a) | 9,678 | 503,837 | ||||||
Toll Brothers, Inc. | 20,067 | 792,847 | ||||||
TopBuild Corp. (a) | 8,435 | 447,645 | ||||||
|
| |||||||
$ | 3,208,051 | |||||||
|
| |||||||
Consumer Products – 1.3% | ||||||||
Sensient Technologies Corp. | 9,170 | $ | 738,460 | |||||
|
| |||||||
Consumer Services – 0.3% | ||||||||
ServiceMaster Global Holdings, Inc. (a) | 5,122 | $ | 200,731 | |||||
|
| |||||||
Containers – 2.5% | ||||||||
Berry Global Group, Inc. (a) | 13,077 | $ | 745,520 | |||||
Graphic Packaging Holding Co. | 52,528 | 723,836 | ||||||
|
| |||||||
$ | 1,469,356 | |||||||
|
| |||||||
Electrical Equipment – 3.1% | ||||||||
HD Supply Holdings, Inc. (a) | 10,882 | $ | 333,316 | |||||
MSC Industrial Direct Co., Inc., “A” | 6,073 | 522,035 | ||||||
TriMas Corp. (a) | 26,477 | 552,045 | ||||||
WESCO International, Inc. (a) | 6,251 | 358,182 | ||||||
|
| |||||||
$ | 1,765,578 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Electronics – 3.2% | ||||||||
Integrated Device Technology, Inc. (a) | 17,608 | $ | 454,110 | |||||
OSI Systems, Inc. (a) | 7,047 | 529,582 | ||||||
Plexus Corp. (a) | 16,195 | 851,371 | ||||||
|
| |||||||
$ | 1,835,063 | |||||||
|
| |||||||
Energy – Independent – 0.9% | ||||||||
Energen Corp. (a) | 10,621 | $ | 524,359 | |||||
|
| |||||||
Engineering – Construction – 1.3% | ||||||||
KBR, Inc. | 32,078 | $ | 488,227 | |||||
Team, Inc. (a) | 11,663 | 273,497 | ||||||
|
| |||||||
$ | 761,724 | |||||||
|
| |||||||
Entertainment – 1.7% | ||||||||
Madison Square Garden Co., “A” (a) | 2,289 | $ | 450,704 | |||||
Parques Reunidos Servicios Centrales S.A.U. (a) | 27,115 | 509,137 | ||||||
|
| |||||||
$ | 959,841 | |||||||
|
| |||||||
Food & Beverages – 1.6% | ||||||||
Cal-Maine Foods, Inc. (a)(l) | 10,853 | $ | 429,779 | |||||
TreeHouse Foods, Inc. (a) | 6,400 | 522,816 | ||||||
|
| |||||||
$ | 952,595 | |||||||
|
| |||||||
Health Maintenance Organizations – 0.5% | ||||||||
Molina Healthcare, Inc. (a) | 4,178 | $ | 289,034 | |||||
|
| |||||||
Insurance – 5.3% | ||||||||
Aspen Insurance Holdings Ltd. | 13,167 | $ | 656,375 | |||||
Everest Re Group Ltd. | 2,988 | 760,715 | ||||||
Hanover Insurance Group, Inc. | 6,977 | 618,372 | ||||||
Safety Insurance Group, Inc. | 8,364 | 571,261 | ||||||
Third Point Reinsurance Ltd. (a) | 32,588 | 452,973 | ||||||
|
| |||||||
$ | 3,059,696 | |||||||
|
| |||||||
Leisure & Toys – 1.3% | ||||||||
Brunswick Corp. | 11,848 | $ | 743,225 | |||||
|
| |||||||
Machinery & Tools – 4.4% | ||||||||
Gardner Denver Holdings, Inc. (a) | 21,309 | $ | 460,487 | |||||
Herman Miller, Inc. | 8,630 | 262,352 | ||||||
ITT, Inc. | 14,261 | 573,007 | ||||||
Regal Beloit Corp. | 7,125 | 581,044 | ||||||
SPX FLOW, Inc. (a) | 17,360 | 640,237 | ||||||
|
| |||||||
$ | 2,517,127 | |||||||
|
| |||||||
Major Banks – 1.0% | ||||||||
Huntington Bancshares, Inc. | 41,302 | $ | 558,403 | |||||
|
| |||||||
Medical & Health Technology & Services – 4.6% | ||||||||
Community Health Systems, Inc. (a) | 19,960 | $ | 198,801 | |||||
HMS Holdings Corp. (a) | 20,966 | 387,871 | ||||||
LifePoint Hospitals, Inc. (a) | 10,974 | 736,904 | ||||||
MEDNAX, Inc. (a) | 10,372 | 626,158 | ||||||
Premier, Inc., “A” (a) | 19,658 | 707,688 | ||||||
|
| |||||||
$ | 2,657,422 | |||||||
|
|
4
Table of Contents
MFS New Discovery Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Medical Equipment – 1.3% | ||||||||
Steris PLC | 9,150 | $ | 745,725 | |||||
|
| |||||||
Natural Gas – Pipeline – 1.0% | ||||||||
Boardwalk Pipeline Partners LP | 33,005 | $ | 594,420 | |||||
|
| |||||||
Oil Services – 3.3% | ||||||||
Forum Energy Technologies, Inc. (a) | 14,344 | $ | 223,766 | |||||
Frank’s International N.V. (l) | 72,106 | 597,759 | ||||||
Keane Group, Inc. (a) | 23,896 | 382,336 | ||||||
Superior Energy Services, Inc. (a) | 22,447 | 234,122 | ||||||
U.S. Silica Holdings, Inc. | 12,367 | 438,905 | ||||||
|
| |||||||
$ | 1,876,888 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 17.8% | ||||||||
Air Lease Corp. | 17,836 | $ | 666,353 | |||||
Berkshire Hills Bancorp, Inc. | 15,729 | 552,874 | ||||||
Brookline Bancorp, Inc. | 32,291 | 471,449 | ||||||
Cathay General Bancorp, Inc. | 11,977 | 454,527 | ||||||
Element Fleet Management Corp. | 78,305 | 537,411 | ||||||
Encore Capital Group, Inc. (a) | 10,379 | 416,717 | ||||||
First Hawaiian, Inc. | 19,023 | 582,484 | ||||||
First Interstate BancSystem, Inc. | 21,818 | 811,630 | ||||||
Glacier Bancorp, Inc. | 20,059 | 734,360 | ||||||
Hanmi Financial Corp. | 14,982 | 426,238 | ||||||
Lakeland Financial Corp. | 11,007 | 505,001 | ||||||
Sandy Spring Bancorp, Inc. | 13,920 | 565,987 | ||||||
Santander Consumer USA Holdings, Inc. (a) | 23,511 | 300,000 | ||||||
TCF Financial Corp. | 46,363 | 739,026 | ||||||
Texas Capital Bancshares, Inc. (a) | 6,829 | 528,565 | ||||||
UMB Financial Corp. | 9,325 | 698,070 | ||||||
Valley National Bancorp | 40,867 | 482,639 | ||||||
Wintrust Financial Corp. | 9,754 | 745,596 | ||||||
|
| |||||||
$ | 10,218,927 | |||||||
|
| |||||||
Pollution Control – 1.7% | ||||||||
Advanced Disposal Services, Inc. (a) | 16,778 | $ | 381,364 | |||||
Clean Harbors, Inc. (a) | 10,545 | 588,727 | ||||||
|
| |||||||
$ | 970,091 | |||||||
|
| |||||||
Real Estate – 7.1% | ||||||||
Corporate Office Properties Trust, REIT | 16,055 | $ | 562,407 | |||||
Life Storage, Inc., REIT | 6,715 | 497,581 | ||||||
Medical Properties Trust, Inc., REIT | 62,894 | 809,446 | ||||||
Select Income, REIT | 33,196 | 797,700 | ||||||
STAG Industrial, Inc., REIT | 25,281 | 697,755 | ||||||
Store Capital Corp., REIT | 31,358 | 703,987 | ||||||
|
| |||||||
$ | 4,068,876 | |||||||
|
| |||||||
Special Products & Services – 0.9% | ||||||||
Hostess Brands, Inc. (a) | 31,327 | $ | 504,365 | |||||
|
| |||||||
Specialty Chemicals – 3.9% | ||||||||
Ferro Corp. (a) | 41,052 | $ | 750,841 | |||||
Ferroglobe PLC | 60,525 | 723,274 | ||||||
Ferroglobe R&W Trust (a) | 51,001 | 0 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Specialty Chemicals – continued | ||||||||
Orion Engineered Carbons S.A. | 19,281 | $ | 384,656 | |||||
Univar, Inc. (a) | 13,345 | 389,674 | ||||||
|
| |||||||
$ | 2,248,445 | |||||||
|
| |||||||
Specialty Stores – 2.4% | ||||||||
Citi Trends, Inc. | 15,215 | $ | 322,862 | |||||
Express, Inc. (a) | 21,696 | 146,448 | ||||||
Michaels Co., Inc. (a) | 12,858 | 238,130 | ||||||
Tuesday Morning Corp. (a)(l) | 37,862 | 71,938 | ||||||
Urban Outfitters, Inc. (a) | 19,810 | 367,278 | ||||||
Zumiez, Inc. (a) | 18,898 | 233,390 | ||||||
|
| |||||||
$ | 1,380,046 | |||||||
|
| |||||||
Trucking – 3.1% | ||||||||
Knight Transportation, Inc. | 17,799 | $ | 659,453 | |||||
Marten Transport Ltd. | 17,321 | 474,595 | ||||||
Werner Enterprises, Inc. | 21,453 | 629,646 | ||||||
|
| |||||||
$ | 1,763,694 | |||||||
|
| |||||||
Utilities – Electric Power – 5.4% | ||||||||
El Paso Electric Co. | 22,095 | $ | 1,142,312 | |||||
PNM Resources, Inc. | 26,060 | 996,795 | ||||||
Portland General Electric Co. | 20,919 | 955,789 | ||||||
|
| |||||||
$ | 3,094,896 | |||||||
|
| |||||||
Total Common Stocks (Identified Cost, $45,138,205) | $ | 56,368,136 | ||||||
|
| |||||||
MONEY MARKET FUNDS – 2.1% | ||||||||
MFS Institutional Money Market Portfolio, | ||||||||
0.98% (v) (Identified Cost, $1,224,123) | 1,224,208 | $ | 1,224,208 | |||||
|
| |||||||
COLLATERAL FOR SECURITIES LOANED – 0.4% | ||||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 1% (j) (Identified Cost, $207,781) | 207,781 | $ | 207,781 | |||||
|
| |||||||
Total Investments (Identified Cost, $46,570,109) | $ | 57,800,125 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.5)% | (300,201 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 57,499,924 | ||||||
|
|
(a) | Non-income producing security. |
(j) | The rate quoted is the annualized seven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. |
(v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
5
Table of Contents
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF ASSETS AND LIABILITIES (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
At 6/30/17 | ||||
Assets | ||||
Investments | ||||
Non-affiliated issuers, at value (identified cost, $45,345,986) | $56,575,917 | |||
Underlying affiliated funds, at value (identified cost, $1,224,123) | 1,224,208 | |||
Total investments, at value, including $201,011 of securities on loan (identified cost, $46,570,109) | $57,800,125 | |||
Receivables for | ||||
Investments sold | 281,737 | |||
Fund shares sold | 18,929 | |||
Interest and dividends | 69,493 | |||
Receivable from investment adviser | 6,728 | |||
Other assets | 366 | |||
Total assets | $58,177,378 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $234,518 | |||
Fund shares reacquired | 203,854 | |||
Collateral for securities loaned, at value | 207,781 | |||
Payable to affiliates | ||||
Shareholder servicing costs | 20 | |||
Distribution and/or service fees | 158 | |||
Payable for independent Trustees’ compensation | 107 | |||
Accrued expenses and other liabilities | 31,016 | |||
Total liabilities | $677,454 | |||
Net assets | $57,499,924 | |||
Net assets consist of | ||||
Paid-in capital | $37,484,666 | |||
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 11,230,045 | |||
Accumulated net realized gain (loss) on investments and foreign currency | 8,160,044 | |||
Undistributed net investment income | 625,169 | |||
Net assets | $57,499,924 | |||
Shares of beneficial interest outstanding | 5,137,819 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $45,970,720 | 4,101,587 | $11.21 | |||||||||
Service Class | 11,529,204 | 1,036,232 | 11.13 |
See Notes to Financial Statements
6
Table of Contents
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENT OF OPERATIONS (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
Six months ended 6/30/17 | ||||
Net investment income | ||||
Income | ||||
Dividends | $396,358 | |||
Dividends from underlying affiliated funds | 3,853 | |||
Interest | 3,581 | |||
Foreign taxes withheld | (2,783 | ) | ||
Total investment income | $401,009 | |||
Expenses | ||||
Management fee | $251,100 | |||
Distribution and/or service fees | 12,896 | |||
Shareholder servicing costs | 2,138 | |||
Administrative services fee | 9,182 | |||
Independent Trustees’ compensation | 1,344 | |||
Custodian fee | 2,214 | |||
Shareholder communications | 3,677 | |||
Audit and tax fees | 26,091 | |||
Legal fees | 344 | |||
Miscellaneous | 5,141 | |||
Total expenses | $314,127 | |||
Reduction of expenses by investment adviser | (55,430 | ) | ||
Net expenses | $258,697 | |||
Net investment income | $142,312 | |||
Realized and unrealized gain (loss) on investments and foreign currency | ||||
Realized gain (loss) (identified cost basis) | ||||
Investments: | ||||
Non-affiliated issuers | $3,132,229 | |||
Underlying affiliated funds | (122 | ) | ||
Foreign currency | 167 | |||
Net realized gain (loss) on investments and foreign currency | $3,132,274 | |||
Change in unrealized appreciation (depreciation) | ||||
Investments | $(1,122,397 | ) | ||
Translation of assets and liabilities in foreign currencies | 18 | |||
Net unrealized gain (loss) on investments and foreign currency translation | $(1,122,379 | ) | ||
Net realized and unrealized gain (loss) on investments and foreign currency | $2,009,895 | |||
Change in net assets from operations | $2,152,207 |
See Notes to Financial Statements
7
Table of Contents
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| Six months ended 6/30/17 (unaudited | ) | | Year ended 12/31/16 | | |||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income | $142,312 | $480,528 | ||||||
Net realized gain (loss) on investments and foreign currency | 3,132,274 | 5,385,189 | ||||||
Net unrealized gain (loss) on investments and foreign currency translation | (1,122,379 | ) | 7,578,064 | |||||
Change in net assets from operations | $2,152,207 | $13,443,781 | ||||||
Distributions declared to shareholders | ||||||||
From net investment income | $— | $(482,043 | ) | |||||
From net realized gain on investments | — | (5,204,769 | ) | |||||
Total distributions declared to shareholders | $— | $(5,686,812 | ) | |||||
Change in net assets from fund share transactions | $336,106 | $(8,250,152 | ) | |||||
Total change in net assets | $2,488,313 | $(493,183 | ) | |||||
Net assets | ||||||||
At beginning of period | 55,011,611 | 55,504,794 | ||||||
At end of period (including undistributed net investment income of $625,169 and | $57,499,924 | $55,011,611 |
See Notes to Financial Statements
8
Table of Contents
MFS New Discovery Value Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
Initial Class | Six months ended 6/30/17 (unaudited) | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
Net asset value, beginning of period | $10.79 | $9.44 | $10.74 | $12.12 | $8.85 | $8.33 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.03 | $0.09 | (c) | $0.09 | $0.06 | $0.06 | $0.11 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.39 | 2.34 | (0.40 | ) | 0.35 | 3.44 | 0.72 | |||||||||||||||||
Total from investment operations | $0.42 | $2.43 | $(0.31 | ) | $0.41 | $3.50 | $0.83 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.10 | ) | $(0.07 | ) | $(0.07 | ) | $(0.12 | ) | $(0.01 | ) | |||||||||||||
From net realized gain on investments | — | (0.98 | ) | (0.92 | ) | (1.72 | ) | (0.11 | ) | (0.30 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.08 | ) | $(0.99 | ) | $(1.79 | ) | $(0.23 | ) | $(0.31 | ) | |||||||||||||
Net asset value, end of period (x) | $11.21 | $10.79 | $9.44 | $10.74 | $12.12 | $8.85 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.89 | (n) | 27.03 | (c) | (2.56 | ) | 3.44 | 39.94 | 9.90 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.08 | (a) | 1.05 | (c) | 1.10 | 1.10 | 1.06 | 1.13 | ||||||||||||||||
Expenses after expense reductions (f) | 0.88 | (a) | 0.87 | (c) | 0.88 | 0.98 | 1.05 | N/A | ||||||||||||||||
Net investment income | 0.55 | (a) | 0.91 | (c) | 0.83 | 0.56 | 0.55 | 1.23 | ||||||||||||||||
Portfolio turnover | 27 | (n) | 48 | 53 | 49 | 55 | 146 | |||||||||||||||||
Net assets at end of period (000 omitted) | $45,971 | $46,635 | $47,068 | $54,917 | $57,686 | $52,375 | ||||||||||||||||||
Service Class | Six months ended 6/30/17 | Years ended 12/31 | ||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.72 | $9.38 | $10.68 | $12.06 | $8.80 | $8.30 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (d) | $0.02 | $0.06 | (c) | $0.06 | $0.03 | $0.03 | $0.08 | |||||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency | 0.39 | 2.33 | (0.40 | ) | 0.34 | 3.43 | 0.72 | |||||||||||||||||
Total from investment operations | $0.41 | $2.39 | $(0.34 | ) | $0.37 | $3.46 | $0.80 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.07 | ) | $(0.04 | ) | $(0.03 | ) | $(0.09 | ) | $— | ||||||||||||||
From net realized gain on investments | — | (0.98 | ) | (0.92 | ) | (1.72 | ) | (0.11 | ) | (0.30 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.05 | ) | $(0.96 | ) | $(1.75 | ) | $(0.20 | ) | $(0.30 | ) | |||||||||||||
Net asset value, end of period (x) | $11.13 | $10.72 | $9.38 | $10.68 | $12.06 | $8.80 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.82 | (n) | 26.73 | (c) | (2.90 | ) | 3.19 | �� | 39.68 | 9.60 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.33 | (a) | 1.30 | (c) | 1.35 | 1.35 | 1.31 | 1.38 | ||||||||||||||||
Expenses after expense reductions (f) | 1.13 | (a) | 1.12 | (c) | 1.13 | 1.23 | 1.30 | N/A | ||||||||||||||||
Net investment income | 0.32 | (a) | 0.66 | (c) | 0.58 | 0.30 | 0.29 | 0.91 | ||||||||||||||||
Portfolio turnover | 27 | (n) | 48 | 53 | 49 | 55 | 146 | |||||||||||||||||
Net assets at end of period (000 omitted) | $11,529 | $8,376 | $8,437 | $10,305 | $11,434 | $11,816 |
See Notes to Financial Statements
9
Table of Contents
MFS New Discovery Value Portfolio
Financial Highlights – continued
Information prior to the close of business on December 7, 2012, reflects time periods when another adviser or subadviser was responsible for selecting investments for the fund under a different investment objective and different investment strategies.
(a) | Annualized. |
(c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(k) | The total return does not reflect expenses that apply to separate accounts. Inclusion of these charges would reduce the total return figures for all periods shown. |
(n) | Not annualized. |
(r) | Certain expenses have been reduced without which performance would have been lower. |
(s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
(x) | The net asset values and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
10
Table of Contents
MFS New Discovery Value Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS New Discovery Value Portfolio (the fund) is a diversified series of MFS Variable Insurance Trust III (the trust). The trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
In October 2016, the Securities and Exchange Commission (SEC) released its Final Rule on Investment Company Reporting Modernization (the “Rule”). The Rule, which introduces two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contains amendments to Regulation S-X which impact financial statement presentation, particularly the presentation of derivative investments. Although still evaluating the impacts of the Rule, management believes that many of the Regulation S-X amendments are consistent with the fund’s current financial statement presentation and expects that the fund will be able to comply with the Rule’s Regulation S-X amendments by the August 1, 2017 compliance date.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the
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Notes to Financial Statements (unaudited) – continued
business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2017 in valuing the fund’s assets or liabilities:
Investments at Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $56,368,136 | $— | $0 | $56,368,136 | ||||||||||||
Mutual Funds | 1,431,989 | — | — | 1,431,989 | ||||||||||||
Total Investments | $57,800,125 | $— | $0 | $57,800,125 |
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.
Equity Securities | ||||
Balance as of 12/31/16 | $0 | |||
Change in unrealized appreciation (depreciation) | — | |||
Balance as of 6/30/17 | $0 |
The net change in unrealized appreciation (depreciation) from investments still held as level 3 at June 30, 2017 is $0. At June 30, 2017, the fund held one level 3 security.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company (“State Street”), as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. State Street provides the fund with indemnification against Borrower default. In the event of Borrower default, State Street will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, State Street assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, State Street is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $201,011. The fair value of the fund’s investment securities on loan and a related liability of $207,781 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral received on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the
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Notes to Financial Statements (unaudited) – continued
fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is included in “Interest” income in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/16 | ||||
Ordinary income (including any short-term capital gains) | $1,506,595 | |||
Long-term capital gains | 4,180,217 | |||
Total distributions | $5,686,812 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/17 | ||||
Cost of investments | $46,901,352 | |||
Gross appreciation | 12,600,414 | |||
Gross depreciation | (1,701,641 | ) | ||
Net unrealized appreciation (depreciation) | $10,898,773 | |||
As of 12/31/16 | ||||
Undistributed ordinary income | 1,420,586 | |||
Undistributed long-term capital gain | 4,365,467 | |||
Other temporary differences | 11 | |||
Net unrealized appreciation (depreciation) | 12,076,987 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
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Notes to Financial Statements (unaudited) – continued
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and/or service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
From net investment income | From net realized gain on investments | |||||||||||||||
Six months ended 6/30/17 | Year ended 12/31/16 | Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||
Initial Class | $— | $429,416 | $— | $4,421,516 | ||||||||||||
Service Class | — | 52,627 | — | 783,253 | ||||||||||||
Total | $— | $482,043 | $— | $5,204,769 |
(3) | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
First $250 million of average daily net assets | 0.90% | |||
Average daily net assets in excess of $250 million | 0.85% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2017, this management fee reduction amounted to $2,141, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.89% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual operating expenses do not exceed 0.88% of average daily net assets for the Initial Class shares and 1.13% of average daily net assets for the Service Class shares. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until April 30, 2019. For the six months ended June 30, 2017, this reduction amounted to $53,289, which is included in the reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, is the distributor of shares of the fund. The Trustees have adopted a distribution plan for the Service Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD distribution and/or service fees equal to 0.25% per annum of its average daily net assets attributable to Service Class shares as partial consideration for services performed and expenses incurred by MFD and financial intermediaries (including participating insurance companies that invest in the fund to fund variable annuity and variable life insurance contracts, sponsors of qualified retirement and pension plans that invest in the fund, and affiliates of these participating insurance companies and plan sponsors) in connection with the sale and distribution of the Service Class shares. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent. For the six months ended June 30, 2017, the fee was $1,830, which equated to 0.0066% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2017, these costs amounted to $308.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended June 30, 2017 was equivalent to an annual effective rate of 0.0329% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
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Notes to Financial Statements (unaudited) – continued
Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended June 30, 2017, the fee paid by the fund under this agreement was $51 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. Under this policy, cross-trades are effected at current market prices with no remuneration paid in connection with the transaction. During the six months ended June 30, 2017, the fund engaged in purchase transactions pursuant to this policy, which amounted to $19,003.
(4) | Portfolio Securities |
For the six months ended June 30, 2017, purchases and sales of investments, other than short-term obligations, aggregated $14,994,946 and $15,544,815, respectively.
(5) | Shares of Beneficial Interest |
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:
Six months ended 6/30/17 | Year ended 12/31/16 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 55,850 | $610,702 | 190,429 | $1,881,992 | ||||||||||||
Service Class | 321,499 | 3,510,568 | 110,795 | 1,102,645 | ||||||||||||
377,349 | $4,121,270 | 301,224 | $2,984,637 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 500,096 | $4,850,932 | ||||||||||||
Service Class | — | — | 86,619 | 835,880 | ||||||||||||
— | $— | 586,715 | $5,686,812 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (276,065 | ) | $(3,059,244 | ) | (1,357,333 | ) | $(13,806,560 | ) | ||||||||
Service Class | (66,285 | ) | (725,920 | ) | (315,861 | ) | (3,115,041 | ) | ||||||||
(342,350 | ) | $(3,785,164 | ) | (1,673,194 | ) | $(16,921,601 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (220,215 | ) | $(2,448,542 | ) | (666,808 | ) | $(7,073,636 | ) | ||||||||
Service Class | 255,214 | 2,784,648 | (118,447 | ) | (1,176,516 | ) | ||||||||||
34,999 | $336,106 | (785,255 | ) | $(8,250,152 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Growth Allocation Portfolio, and the MFS Conservative Allocation Portfolio were the owners of record of approximately 45%, 15%, and 10%, respectively, of the value of outstanding voting shares of the fund.
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, 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, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended June 30, 2017, the fund’s commitment fee and interest expense were $190 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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(7) | Transactions in Underlying Affiliated Funds – Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
Underlying Affiliated Fund | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||
MFS Institutional Money Market Portfolio | 416,540 | 8,408,191 | (7,600,523 | ) | 1,224,208 | |||||||||||
Underlying Affiliated Fund | Realized Gain (Loss) | Capital Gain Distributions | Dividend Income | Ending Value | ||||||||||||
MFS Institutional Money Market Portfolio | $(122 | ) | $— | $3,853 | $1,224,208 |
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RESULTS OF SHAREHOLDER MEETING (unaudited)
At a special meeting of shareholders of MFS Variable Insurance Trust III, which was held on March 23, 2017, the following action was taken:
Item 1: To elect the following individuals as Trustees:
Number of Dollars | ||||||||
Nominee | For | Withheld Authority | ||||||
Steven E. Buller | 4,150,701,887.39 | 241,376,921.27 | ||||||
John A. Caroselli | 4,163,648,258.20 | 228,430,550.46 | ||||||
Maureen R. Goldfarb | 4,165,999,272.40 | 226,079,536.26 | ||||||
David H. Gunning | 4,135,378,630.87 | 256,700,177.79 | ||||||
Michael Hegarty | 4,142,773,123.53 | 249,305,685.13 | ||||||
John P. Kavanaugh | 4,157,042,834.00 | 235,035,974.66 | ||||||
Robert J. Manning | 4,162,216,171.60 | 229,862,637.06 | ||||||
Clarence Otis, Jr. | 4,149,072,446.64 | 243,006,362.02 | ||||||
Maryanne L. Roepke | 4,149,072,446.64 | 243,006,362.02 | ||||||
Robin A. Stelmach | 4,166,504,004.88 | 225,574,803.78 | ||||||
Laurie J. Thomsen | 4,172,043,350.45 | 220,035,458.21 |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com (once you have selected “Individual Investor” as your role, click on “Individual Investor Home” in the top navigation and then select “Learn More About Proxy Voting” under the “I want to…” header on the left hand column of the page), or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund 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 fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also 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.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available on mfs.com by following these steps once you have selected “Individual Investor” as your role: (1) Click on the “Individual Investor Home” in the top navigation and then select the “Announcements” option within the “Market Outlooks” drop down, or (2) Click on “Products & Services” and “Variable Insurance Portfolios”, then “VIT III” and then select the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
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ITEM 2. | CODE OF ETHICS. |
Effective January 1, 2017, the Registrant’s Code of Ethics (the “Code”) was amended to (i) clarify that the term “for profit” company as used in Section II.B of the Code excludes the investment adviser and its subsidiaries and pooled investment vehicles sponsored by the investment adviser or its subsidiaries, (ii) align the Code’s provisions regarding receipt of gifts and entertainment in Section II.B of the Code with the gifts and entertainment policy of the Funds’ investment adviser, and (iii) make other administrative changes. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the amended Code effective as of January 1, 2017 is filed as an exhibit to this Form N-CSR.
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. | 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.
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ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
(b) | There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 13. | 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. Attached hereto. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto. |
(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. |
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Notice
Notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS VARIABLE INSURANCE TRUST III
By (Signature and Title)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President |
Date: August 16, 2017
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)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President (Principal Executive Officer) |
Date: August 16, 2017
By (Signature and Title)* | JAMES O. YOST | |
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: August 16, 2017
* | Print name and title of each signing officer under his or her signature. |