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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMN-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number811-8879
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, 2019
Table of Contents
ITEM 1. | REPORTS TO STOCKHOLDERS. |
Table of Contents
Semiannual Report
June 30, 2019
MFS® Blended Research® Small Cap Equity Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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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:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 |
| |||
Rapid7, Inc. | 1.6% | |||
Store Capital Corp., REIT | 1.6% | |||
KBR, Inc. | 1.6% | |||
Tech Data Corp. | 1.5% | |||
Paylocity Holding Corp. | 1.5% | |||
Stoneridge, Inc. | 1.5% | |||
Cathay General Bancorp, Inc. | 1.5% | |||
Cornerstone OnDemand, Inc. | 1.4% | |||
MRC Global, Inc. | 1.4% | |||
Hanmi Financial Corp. | 1.4% |
Equity sectors (k) | ||||
Financial Services | 25.2% | |||
Technology | 16.3% | |||
Health Care | 14.5% | |||
Industrial Goods & Services | 7.7% | |||
Special Products & Services | 5.8% | |||
Basic Materials | 5.6% | |||
Autos & Housing | 5.1% | |||
Leisure | 4.1% | |||
Retailing | 3.5% | |||
Energy | 3.4% | |||
Utilities | 2.9% | |||
Consumer Staples | 2.6% | |||
Communications | 1.9% | |||
Transportation | 0.7% |
(k) | The sectors set forth above and the associated portfolio composition are based on MFS’ own custom sector classification methodology. |
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, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.54% | $1,000.00 | $1,185.78 | $2.93 | |||||||||||||
Hypothetical (h) | 0.54% | $1,000.00 | $1,022.12 | $2.71 | ||||||||||||||
Service Class | Actual | 0.79% | $1,000.00 | $1,184.98 | $4.28 | |||||||||||||
Hypothetical (h) | 0.79% | $1,000.00 | $1,020.88 | $3.96 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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MFS Blended Research Small Cap Equity Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 99.3% | ||||||||
Aerospace – 1.2% |
| |||||||
American Outdoor Brands Corp. (a) | 39,869 | $ | 359,220 | |||||
CACI International, Inc., “A” (a) | 3,793 | 776,010 | ||||||
|
| |||||||
$ | 1,135,230 | |||||||
|
| |||||||
Apparel Manufacturers – 1.7% | ||||||||
Levi Strauss & Co., “A” (a) | 20,673 | $ | 431,652 | |||||
Skechers USA, Inc., “A” (a) | 37,289 | 1,174,231 | ||||||
|
| |||||||
$ | 1,605,883 | |||||||
|
| |||||||
Automotive – 1.5% | ||||||||
Stoneridge, Inc. (a) | 45,349 | $ | 1,430,761 | |||||
|
| |||||||
Biotechnology – 4.3% | ||||||||
Acorda Therapeutics, Inc. (a) | 62,853 | $ | 482,083 | |||||
Akebia Therapeutics, Inc. (a) | 83,655 | 404,890 | ||||||
Arena Pharmaceuticals, Inc. (a) | 10,700 | 627,341 | ||||||
Bio-Techne Corp. | 5,377 | 1,121,051 | ||||||
Bruker BioSciences Corp. | 5,893 | 294,355 | ||||||
Genomic Health, Inc. (a) | 2,924 | 170,089 | ||||||
Macrogenics, Inc. (a) | 20,844 | 353,723 | ||||||
Pieris Pharmaceuticals, Inc. (a) | 23,507 | 110,483 | ||||||
Varex Imaging Corp. (a) | 18,248 | 559,301 | ||||||
|
| |||||||
$ | 4,123,316 | |||||||
|
| |||||||
Broadcasting – 0.2% | ||||||||
Sinclair Broadcast Group, Inc. | 3,287 | $ | 176,282 | |||||
|
| |||||||
Brokerage & Asset Managers – 0.2% |
| |||||||
LPL Financial Holdings, Inc. | 1,453 | $ | 118,521 | |||||
Waddell & Reed Financial, Inc., “A” | 4,004 | 66,747 | ||||||
|
| |||||||
$ | 185,268 | |||||||
|
| |||||||
Business Services – 1.1% | ||||||||
Forrester Research, Inc. (a) | 22,346 | $ | 1,050,932 | |||||
|
| |||||||
Cable TV – 1.0% | ||||||||
Cable One, Inc. | 792 | $ | 927,424 | |||||
|
| |||||||
Chemicals – 1.2% | ||||||||
Ingevity Corp. (a) | 10,769 | $ | 1,132,576 | |||||
|
| |||||||
Computer Software – 4.1% | ||||||||
Cornerstone OnDemand, Inc. (a) | 22,869 | $ | 1,324,801 | |||||
Everbridge, Inc. (a) | 1,668 | 149,153 | ||||||
Manhattan Associates, Inc. (a) | 3,145 | 218,043 | ||||||
Paylocity Holding Corp. (a) | 15,358 | 1,440,887 | ||||||
RingCentral, Inc. (a) | 3,656 | 420,147 | ||||||
SecureWorks Corp. (a)(l) | 23,275 | 309,325 | ||||||
|
| |||||||
$ | 3,862,356 | |||||||
|
| |||||||
Computer Software – Systems – 8.8% |
| |||||||
Box, Inc. (a) | 13,035 | $ | 229,546 | |||||
Five9, Inc. (a) | 24,953 | 1,279,839 | ||||||
ForeScout Tech, Inc. (a) | 8,450 | 286,117 | ||||||
Insight Enterprises, Inc. (a) | 3,958 | 230,356 | ||||||
NCR Corp. (a) | 34,823 | 1,082,995 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Computer Software – Systems – continued |
| |||||||
Presidio, Inc. | 91,861 | $ | 1,255,740 | |||||
Rapid7, Inc. (a) | 26,673 | 1,542,766 | ||||||
Tech Data Corp. (a) | 13,864 | 1,450,175 | ||||||
Verint Systems, Inc. (a) | 19,395 | 1,043,063 | ||||||
|
| |||||||
$ | 8,400,597 | |||||||
|
| |||||||
Construction – 1.6% | ||||||||
Armstrong World Industries, Inc. | 4,613 | $ | 448,384 | |||||
Eagle Materials, Inc. | 6,115 | 566,861 | ||||||
Toll Brothers, Inc. | 15,183 | 556,001 | ||||||
|
| |||||||
$ | 1,571,246 | |||||||
|
| |||||||
Consumer Products – 0.6% | ||||||||
Herbalife Ltd. (a) | 5,491 | $ | 234,795 | |||||
Prestige Brands Holdings, Inc. (a) | 7,494 | 237,410 | ||||||
USANA Health Sciences, Inc. (a) | 1,667 | 132,410 | ||||||
|
| |||||||
$ | 604,615 | |||||||
|
| |||||||
Consumer Services – 1.3% | ||||||||
Grand Canyon Education, Inc. (a) | 10,273 | $ | 1,202,146 | |||||
|
| |||||||
Electrical Equipment – 2.5% | ||||||||
TriMas Corp. (a) | 41,753 | $ | 1,293,090 | |||||
WESCO International, Inc. (a) | 21,775 | 1,102,904 | ||||||
|
| |||||||
$ | 2,395,994 | |||||||
|
| |||||||
Electronics – 2.4% | ||||||||
Amkor Technology, Inc. (a) | 66,758 | $ | 498,015 | |||||
Jabil Circuit, Inc. | 21,198 | 669,857 | ||||||
OSI Systems, Inc. (a) | 3,897 | 438,919 | ||||||
Sanmina Corp. (a) | 14,476 | 438,333 | ||||||
Silicon Laboratories, Inc. (a) | 2,764 | 285,797 | ||||||
|
| |||||||
$ | 2,330,921 | |||||||
|
| |||||||
Energy – Independent – 1.2% | ||||||||
Delek U.S. Holdings, Inc. | 10,971 | $ | 444,545 | |||||
Par Pacific Holdings, Inc. (a) | 9,700 | 199,044 | ||||||
Warrior Met Coal, Inc. | 19,131 | 499,702 | ||||||
|
| |||||||
$ | 1,143,291 | |||||||
|
| |||||||
Engineering – Construction – 2.4% | ||||||||
KBR, Inc. | 60,061 | $ | 1,497,921 | |||||
Matrix Service Co. (a) | 25,649 | 519,649 | ||||||
Quanta Services, Inc. | 7,843 | 299,524 | ||||||
|
| |||||||
$ | 2,317,094 | |||||||
|
| |||||||
Entertainment – 0.5% | ||||||||
AMC Entertainment Holdings, Inc., “A” (l) | 54,049 | $ | 504,277 | |||||
|
| |||||||
Food & Beverages – 2.4% | ||||||||
Hostess Brands, Inc. (a) | 20,258 | $ | 292,525 | |||||
Ingredion, Inc. | 11,504 | 948,965 | ||||||
Pilgrim’s Pride Corp. (a) | 28,763 | 730,293 | ||||||
SpartanNash Co. | 25,693 | 299,837 | ||||||
|
| |||||||
$ | 2,271,620 | |||||||
|
|
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MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Forest & Paper Products – 1.0% |
| |||||||
Boise Cascade Corp. | 12,070 | $ | 339,288 | |||||
Verso Corp., “A” (a) | 32,837 | 625,545 | ||||||
|
| |||||||
$ | 964,833 | |||||||
|
| |||||||
Gaming & Lodging – 0.2% |
| |||||||
Everi Holdings, Inc. (a) | 13,083 | $ | 156,080 | |||||
|
| |||||||
Health Maintenance Organizations – 0.9% |
| |||||||
Molina Healthcare, Inc. (a) | 5,867 | $ | 839,802 | |||||
|
| |||||||
Insurance – 3.7% |
| |||||||
American Equity Investment Life Holding Co. | 30,087 | $ | 817,163 | |||||
Essent Group Ltd. (a) | 16,399 | 770,589 | ||||||
MGIC Investment Corp. (a) | 56,555 | 743,132 | ||||||
Radian Group, Inc. | 35,415 | 809,233 | ||||||
Universal Insurance Holdings, Inc. | 13,059 | 364,346 | ||||||
|
| |||||||
$ | 3,504,463 | |||||||
|
| |||||||
Internet – 0.8% |
| |||||||
Blucora, Inc. (a) | 2,673 | $ | 81,179 | |||||
LogMeIn, Inc. | 9,804 | 722,359 | ||||||
|
| |||||||
$ | 803,538 | |||||||
|
| |||||||
Leisure & Toys – 1.3% |
| |||||||
Brunswick Corp. | 20,868 | $ | 957,632 | |||||
Funko, Inc., “A” (a) | 11,453 | 277,392 | ||||||
|
| |||||||
$ | 1,235,024 | |||||||
|
| |||||||
Machinery & Tools – 5.7% |
| |||||||
ACCO Brands Corp. | 25,275 | $ | 198,914 | |||||
AGCO Corp. | 16,231 | 1,259,039 | ||||||
Allison Transmission Holdings, Inc. | 7,059 | 327,185 | ||||||
Herman Miller, Inc. | 4,643 | 207,542 | ||||||
ITT, Inc. | 1,776 | 116,292 | ||||||
Knoll, Inc. | 9,590 | 220,378 | ||||||
Park-Ohio Holdings Corp. | 13,328 | 434,360 | ||||||
Regal Beloit Corp. | 13,003 | 1,062,475 | ||||||
SPX FLOW, Inc. (a) | 22,277 | 932,515 | ||||||
Titan Machinery, Inc. (a) | 32,220 | 663,088 | ||||||
|
| |||||||
$ | 5,421,788 | |||||||
|
| |||||||
Medical & Health Technology & Services – 0.9% |
| |||||||
Allscripts Healthcare Solutions, Inc. (a) | 8,693 | $ | 101,099 | |||||
Tenet Healthcare Corp. (a) | 37,292 | 770,453 | ||||||
|
| |||||||
$ | 871,552 | |||||||
|
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Medical Equipment – 4.8% |
| |||||||
AngioDynamics, Inc. (a) | 25,954 | $ | 511,034 | |||||
Avanos Medical, Inc. (a) | 15,872 | 692,178 | ||||||
CONMED Corp. | 11,483 | 982,600 | ||||||
CUTERA, Inc. (a) | 2,406 | 49,997 | ||||||
Integer Holdings Corp. (a) | 10,487 | 880,069 | ||||||
IntriCon Corp. (a) | 14,495 | 338,603 | ||||||
Lantheus Holdings, Inc. (a) | 24,002 | 679,257 | ||||||
LivaNova PLC (a) | 1,670 | 120,173 | ||||||
Orthofix Medical, Inc. (a) | 5,673 | 299,988 | ||||||
|
| |||||||
$ | 4,553,899 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Metals & Mining – 0.3% |
| |||||||
Olympic Steel, Inc. | 4,666 | $ | 63,691 | |||||
Ryerson Holding Corp. (a) | 18,080 | 150,606 | ||||||
Schnitzer Steel Industries, Inc., “A” | 2,330 | 60,976 | ||||||
|
| |||||||
$ | 275,273 | |||||||
|
| |||||||
Natural Gas – Distribution – 0.2% |
| |||||||
MDU Resources Group, Inc. | 8,308 | $ | 214,346 | |||||
|
| |||||||
Natural Gas – Pipeline – 0.5% |
| |||||||
Equitrans Midstream Corp. | 24,084 | $ | 474,696 | |||||
|
| |||||||
Oil Services – 3.2% |
| |||||||
Apergy Corp. (a) | 6,249 | $ | 209,592 | |||||
Cactus, Inc., “A” (a) | 34,631 | 1,146,979 | ||||||
Liberty Oilfield Services, Inc. (l) | 24,263 | 392,575 | ||||||
MRC Global, Inc. (a) | 76,667 | 1,312,539 | ||||||
|
| |||||||
$ | 3,061,685 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 13.6% |
| |||||||
Assured Guaranty Ltd. | 1,006 | $ | 42,332 | |||||
Bank of N.T. Butterfield & Son Ltd. | 13,485 | 457,951 | ||||||
Bank OZK | 41,132 | 1,237,662 | ||||||
CAI International, Inc. (a) | 18,607 | 461,826 | ||||||
Cathay General Bancorp, Inc. | 38,803 | 1,393,416 | ||||||
East West Bancorp, Inc. | 14,695 | 687,285 | ||||||
Enova International, Inc. (a) | 22,551 | 519,800 | ||||||
First Hawaiian, Inc. | 45,887 | 1,187,097 | ||||||
First Interstate BancSystem, Inc. | 24,483 | 969,772 | ||||||
Hanmi Financial Corp. | 58,837 | 1,310,300 | ||||||
Herc Holdings, Inc. (a) | 15,973 | 732,042 | ||||||
Legacytextas Financial Group, Inc. | 6,233 | 253,745 | ||||||
OFG Bancorp | 6,852 | 162,872 | ||||||
Popular, Inc. | 11,341 | 615,136 | ||||||
Prosperity Bancshares, Inc. | 4,644 | 306,736 | ||||||
Regional Management Corp. (a) | 21,472 | 566,217 | ||||||
Triton International Ltd. of Bermuda | 17,510 | 573,628 | ||||||
UMB Financial Corp. | 4,904 | 322,781 | ||||||
Wintrust Financial Corp. | 15,623 | 1,142,979 | ||||||
|
| |||||||
$ | 12,943,577 | |||||||
|
| |||||||
Pharmaceuticals – 3.3% |
| |||||||
AMAG Pharmaceuticals, Inc. (a) | 34,078 | $ | 340,439 | |||||
Assertio Therapeutics, Inc. (a) | 88,528 | 305,422 | ||||||
Catalent, Inc. (a) | 5,466 | 296,312 | ||||||
Horizon Therapeutics PLC (a) | 39,749 | 956,361 | ||||||
Mallinckrodt PLC (a) | 33,853 | 310,770 | ||||||
Phibro Animal Health Corp., “A” | 16,895 | 536,754 | ||||||
United Therapeutics Corp. (a) | 4,848 | 378,435 | ||||||
|
| |||||||
$ | 3,124,493 | |||||||
|
| |||||||
Pollution Control – 0.2% |
| |||||||
Evoqua Water TechnologiesLLC (a) | 11,989 | $ | 170,723 | |||||
|
| |||||||
Real Estate – 9.5% |
| |||||||
Braemar Hotels & Resorts, Inc., REIT | 39,007 | $ | 386,169 | |||||
CareTrust REIT, Inc., REIT | 25,179 | 598,757 | ||||||
CoreCivic, Inc., REIT | 41,205 | 855,416 | ||||||
Cousins Properties, Inc., REIT | 16,966 | 613,660 | ||||||
EPR Properties, REIT | 15,670 | 1,168,825 |
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Table of Contents
MFS Blended Research Small Cap Equity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Real Estate – continued |
| |||||||
Industrial Logistics Properties Trust, REIT | 62,526 | $ | 1,301,791 | |||||
Life Storage, Inc., REIT | 9,449 | 898,411 | ||||||
Medical Properties Trust, Inc., REIT | 70,308 | 1,226,172 | ||||||
Spirit Realty Capital, Inc., REIT | 12,084 | 515,503 | ||||||
STORE Capital Corp., REIT | 45,203 | 1,500,288 | ||||||
|
| |||||||
$ | 9,064,992 | |||||||
|
| |||||||
Restaurants – 1.6% |
| |||||||
Bloomin Brands, Inc. | 27,467 | $ | 519,401 | |||||
Carrols Restaurant Group, Inc. (a) | 36,784 | 332,160 | ||||||
Wendy’s Co. | 32,669 | 639,659 | ||||||
|
| |||||||
$ | 1,491,220 | |||||||
|
| |||||||
Specialty Chemicals – 1.0% |
| |||||||
Renewable Energy Group, Inc. (a) | 6,983 | $ | 110,751 | |||||
Univar, Inc. (a) | 36,632 | 807,369 | ||||||
|
| |||||||
$ | 918,120 | |||||||
|
| |||||||
Specialty Stores – 0.5% |
| |||||||
Express, Inc. (a) | 32,061 | $ | 87,527 | |||||
Floor & Decor Holdings, Inc. (a) | 1,375 | 57,613 | ||||||
Signet Jewelers Ltd. | 4,397 | 78,618 | ||||||
Zumiez, Inc. (a) | 10,931 | 285,299 | ||||||
|
| |||||||
$ | 509,057 | |||||||
|
| |||||||
Telecommunications – Wireless – 1.1% |
| |||||||
Iridium Communications, Inc. (a) | 24,871 | $ | 578,499 | |||||
Telephone and Data Systems, Inc. | 16,174 | 491,690 | ||||||
|
| |||||||
$ | 1,070,189 | |||||||
|
| |||||||
Telephone Services – 1.0% |
| |||||||
ATN International, Inc. | 6,000 | $ | 346,380 | |||||
Shenandoah Telecommunications Co. | 14,988 | 577,338 | ||||||
|
| |||||||
$ | 923,718 | |||||||
|
| |||||||
Trucking – 0.6% |
| |||||||
Forward Air Corp. | 10,060 | $ | 595,049 | |||||
|
| |||||||
Utilities – Electric Power – 3.2% |
| |||||||
Clearway Energy, Inc. | 53,034 | $ | 858,090 | |||||
NRG Energy, Inc. | 19,746 | 693,480 | ||||||
Portland General Electric Co. | 20,000 | 1,083,400 | ||||||
Spark Energy, Inc., “A” | 36,559 | 409,095 | ||||||
|
| |||||||
$ | 3,044,065 | |||||||
|
| |||||||
Total Common Stocks (Identified Cost, $82,718,150) | $ | 94,604,011 | ||||||
|
|
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) (a)(u) (Identified Cost, $0) | $ | 10.75 | 11/06/14 | 318 | $ | 0 | ||||||||||
|
|
INVESTMENT COMPANIES (h) – 0.8% |
| |||||||
Money Market Funds – 0.8% |
| |||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $793,281) | 793,306 | $ | 793,385 | |||||
|
| |||||||
COLLATERAL FOR SECURITIES LOANED – 0.8% |
| |||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 2.36% (j) (Identified Cost, $757,906) | 757,906 | $ | 757,906 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.9)% | (824,283 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 95,331,019 | ||||||
|
|
(a) | Non-income producing security. |
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $793,385 and $95,361,917, respectively. |
(j) | The rate quoted is the annualizedseven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. See Note 2 for additional information. |
(u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
6
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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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value, including $885,813 of securities on loan (identified cost, $83,476,056) | $95,361,917 | |||
Investments in affiliated issuers, at value (identified cost, $793,281) | 793,385 | |||
Cash | 187 | |||
Receivables for | ||||
Fund shares sold | 6,589 | |||
Interest and dividends | 139,673 | |||
Other assets | 498 | |||
Total assets | $96,302,249 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $147,226 | |||
Collateral for securities loaned, at value (c) | 757,906 | |||
Payable to affiliates | ||||
Investment adviser | 4,015 | |||
Administrative services fee | 256 | |||
Shareholder servicing costs | 39 | |||
Distribution and/or service fees | 1,655 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 60,033 | |||
Total liabilities | $971,230 | |||
Net assets | $95,331,019 | |||
Net assets consist of | ||||
Paid-in capital | $63,877,003 | |||
Total distributable earnings (loss) | 31,454,016 | |||
Net assets | $95,331,019 | |||
Shares of beneficial interest outstanding | 7,288,690 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $33,915,948 | 2,541,518 | $13.34 | |||||||||
Service Class | 61,415,071 | 4,747,172 | 12.94 |
(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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends | $751,843 | |||
Income on securities loaned | 27,455 | |||
Dividends from affiliated issuers | 10,821 | |||
Other | 9,885 | |||
Foreign taxes withheld | (785 | ) | ||
Total investment income | $799,219 | |||
Expenses | ||||
Management fee | $187,461 | |||
Distribution and/or service fees | 75,365 | |||
Shareholder servicing costs | 3,291 | |||
Administrative services fee | 11,775 | |||
Independent Trustees’ compensation | 1,859 | |||
Custodian fee | 2,571 | |||
Shareholder communications | 10,476 | |||
Audit and tax fees | 27,202 | |||
Legal fees | 503 | |||
Miscellaneous | 12,453 | |||
Total expenses | $332,956 | |||
Reduction of expenses by investment adviser | (4,531 | ) | ||
Net expenses | $328,425 | |||
Net investment income (loss) | $470,794 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $3,757,975 | |||
Affiliated issuers | 231 | |||
Net realized gain (loss) | $3,758,206 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $11,518,144 | |||
Affiliated issuers | 104 | |||
Net unrealized gain (loss) | $11,518,248 | |||
Net realized and unrealized gain (loss) | $15,276,454 | |||
Change in net assets from operations | $15,747,248 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $470,794 | $531,740 | ||||||
Net realized gain (loss) | 3,758,206 | 15,299,479 | ||||||
Net unrealized gain (loss) | 11,518,248 | (18,798,977 | ) | |||||
Change in net assets from operations | $15,747,248 | $(2,967,758 | ) | |||||
Total distributions to shareholders | $— | $(12,885,061 | ) | |||||
Change in net assets from fund share transactions | $(6,000,312 | ) | $(6,124,153 | ) | ||||
Total change in net assets | $9,746,936 | $(21,976,972 | ) | |||||
Net assets | ||||||||
At beginning of period | 85,584,083 | 107,561,055 | ||||||
At end of period | $95,331,019 | $85,584,083 |
See Notes to Financial Statements
9
Table of Contents
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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $11.25 | $13.47 | $13.23 | $12.29 | $16.04 | $18.24 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.08 | $0.09 | $0.11 | $0.11 | (c) | $0.15 | $0.10 | |||||||||||||||||
Net realized and unrealized gain (loss) | 2.01 | (0.40 | ) | 1.70 | 2.35 | (0.94 | ) | 1.16 | ||||||||||||||||
Total from investment operations | $2.09 | $(0.31 | ) | $1.81 | $2.46 | $(0.79 | ) | $1.26 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.13 | ) | $(0.12 | ) | $(0.16 | ) | $(0.10 | ) | $(0.18 | ) | |||||||||||||
From net realized gain | — | (1.78 | ) | (1.45 | ) | (1.36 | ) | (2.86 | ) | (3.28 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.91 | ) | $(1.57 | ) | $(1.52 | ) | $(2.96 | ) | $(3.46 | ) | |||||||||||||
Net asset value, end of period (x) | $13.34 | $11.25 | $13.47 | $13.23 | $12.29 | $16.04 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 18.58 | (n) | (5.11 | ) | 14.97 | 20.90 | (c) | (4.15 | ) | 7.29 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.55 | (a) | 0.54 | 0.53 | 0.42 | (c) | 0.54 | 0.51 | ||||||||||||||||
Expenses after expense reductions (f) | 0.54 | (a) | 0.53 | 0.52 | 0.41 | (c) | 0.53 | 0.50 | ||||||||||||||||
Net investment income (loss) | 1.17 | (a) | 0.69 | 0.82 | 0.92 | (c) | 1.03 | 0.56 | ||||||||||||||||
Portfolio turnover | 30 | (n) | 72 | 81 | 72 | 78 | 67 | |||||||||||||||||
Net assets at end of period (000 omitted) | $33,916 | $29,936 | $36,195 | $28,715 | $27,795 | $31,323 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.92 | $13.12 | $12.92 | $12.03 | $15.75 | $17.96 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.06 | $0.06 | $0.07 | $0.08 | (c) | $0.12 | $0.05 | |||||||||||||||||
Net realized and unrealized gain (loss) | 1.96 | (0.39 | ) | 1.67 | 2.29 | (0.93 | ) | 1.15 | ||||||||||||||||
Total from investment operations | $2.02 | $(0.33 | ) | $1.74 | $2.37 | $(0.81 | ) | $1.20 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.09 | ) | $(0.09 | ) | $(0.12 | ) | $(0.05 | ) | $(0.13 | ) | |||||||||||||
From net realized gain | — | (1.78 | ) | (1.45 | ) | (1.36 | ) | (2.86 | ) | (3.28 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.87 | ) | $(1.54 | ) | $(1.48 | ) | $(2.91 | ) | $(3.41 | ) | |||||||||||||
Net asset value, end of period (x) | $12.94 | $10.92 | $13.12 | $12.92 | $12.03 | $15.75 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 18.50 | (n) | (5.35 | ) | 14.70 | 20.58 | (c) | (4.38 | ) | 7.04 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.80 | (a) | 0.79 | 0.78 | 0.67 | (c) | 0.79 | 0.76 | ||||||||||||||||
Expenses after expense reductions (f) | 0.79 | (a) | 0.78 | 0.77 | 0.66 | (c) | 0.78 | 0.75 | ||||||||||||||||
Net investment income (loss) | 0.91 | (a) | 0.43 | 0.55 | 0.66 | (c) | 0.79 | 0.30 | ||||||||||||||||
Portfolio turnover | 30 | (n) | 72 | 81 | 72 | 78 | 67 | |||||||||||||||||
Net assets at end of period (000 omitted) | $61,415 | $55,648 | $71,366 | $74,453 | $82,794 | $104,221 |
See Notes to Financial Statements
10
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MFS Blended Research Small Cap Equity Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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 anopen-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.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value.Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities 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
12
Table of Contents
MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
United States | $94,146,060 | $— | $0 | $94,146,060 | ||||||||||||
Bermuda | 457,951 | — | — | 457,951 | ||||||||||||
Mutual Funds | 1,551,291 | — | — | 1,551,291 | ||||||||||||
Total | $96,155,302 | $— | $0 | $96,155,302 |
For further information regarding security characteristics, see the Portfolio of Investments. At June 30, 2019, the fund held one level 3 security valued at $0, which was also held and valued at $0 at December 31, 2018.
Security Loans– Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $885,813. The fair value of the fund’s investment securities on loan and a related liability of $757,906 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 $161,192 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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 theex-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 theex-dividend date. Dividend payments received in additional securities are recorded on theex-dividend date in an amount equal to the value of the security on such date.
13
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MFS Blended Research Small Cap Equity Portfolio
Notes to Financial Statements (unaudited) – continued
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Tax Matters and Distributions– The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on theex-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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $2,614,042 | |||
Long-term capital gains | 10,271,019 | |||
Total distributions | $12,885,061 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $85,108,976 | |||
Gross appreciation | 16,936,286 | |||
Gross depreciation | (5,889,960 | ) | ||
Net unrealized appreciation (depreciation) | $11,046,326 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 4,405,639 | |||
Undistributed long-term capital gain | 11,591,790 | |||
Other temporary differences | 4,347 | |||
Net unrealized appreciation (depreciation) | (295,008 | ) |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $298,909 | $— | $4,211,769 | ||||||||||||
Service Class | — | 382,104 | — | 7,992,279 | ||||||||||||
Total | $— | $681,013 | $— | $12,204,048 |
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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 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, 2019, this management fee reduction amounted to $4,531, 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, 2019 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, 2021. For the six months ended June 30, 2019, 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 Rule12b-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, 2019, the fee was $3,096, which equated to 0.0066% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $195.
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, 2019 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $110 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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 adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2019, this reimbursement amounted to $8,290, which is included in “Other” income in the Statement of Operations.
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Notes to Financial Statements (unaudited) – continued
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser orsub-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 Rule17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2019, the fund engaged in purchase transactions pursuant to this policy, which amounted to $147,108.
(4) | Portfolio Securities |
For the six months ended June 30, 2019, purchases and sales of investments, other than short-term obligations, aggregated $27,683,456 and $32,902,407, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 151,779 | $1,974,871 | 261,230 | $3,403,663 | ||||||||||||
Service Class | 300,084 | 3,770,305 | 558,043 | 6,746,807 | ||||||||||||
451,863 | $5,745,176 | 819,273 | $10,150,470 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 321,961 | $4,510,678 | ||||||||||||
Service Class | — | — | 615,311 | 8,374,383 | ||||||||||||
— | $— | 937,272 | $12,885,061 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (272,073 | ) | $(3,534,229 | ) | (608,313 | ) | $(8,423,623 | ) | ||||||||
Service Class | (650,509 | ) | (8,211,259 | ) | (1,515,630 | ) | (20,736,061 | ) | ||||||||
(922,582 | ) | $(11,745,488 | ) | (2,123,943 | ) | $(29,159,684 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (120,294 | ) | $(1,559,358 | ) | (25,122 | ) | $(509,282 | ) | ||||||||
Service Class | (350,425 | ) | (4,440,954 | ) | (342,276 | ) | (5,614,871 | ) | ||||||||
(470,719 | ) | $(6,000,312 | ) | (367,398 | ) | $(6,124,153 | ) |
(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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $272 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $1,018,574 | $10,392,118 | $10,617,642 | $231 | $104 | $793,385 | ||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio |
| $10,821 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/vit3 by choosing 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, 2019
MFS® Conservative Allocation Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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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MFS Conservative Allocation Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 | 11.9% | |||
MFS Government Securities Portfolio | 10.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 9.9% | |||
MFS Global Governments Portfolio | 7.9% | |||
MFS Growth Series | 6.0% | |||
MFS Research Series | 6.0% | |||
MFS Value Series | 6.0% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Mid Cap Growth Series | 4.0% | |||
MFS Mid Cap Value Portfolio | 4.0% | |||
MFS Research International Portfolio | 4.0% | |||
MFS International Growth Portfolio | 2.0% | |||
MFS International Intrinsic Value Portfolio | 2.0% | |||
MFS Global Real Estate Portfolio | 2.0% | |||
MFS New Discovery Series | 1.0% | |||
MFS New Discovery Value Portfolio | 1.0% | |||
Cash & Cash Equivalents | 0.4% |
Portfolio actual allocation
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. MFS endeavors to fully invest all MFSfunds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFSfunds-of-funds’ subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFSfunds-of-funds’ Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the Statements 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, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.03% | $1,000.00 | $1,117.20 | $0.16 | |||||||||||||
Hypothetical (h) | 0.03% | $1,000.00 | $1,024.65 | $0.15 | ||||||||||||||
Service Class | Actual | 0.28% | $1,000.00 | $1,114.99 | $1.47 | |||||||||||||
Hypothetical (h) | 0.28% | $1,000.00 | $1,023.41 | $1.40 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – 100.0% |
| |||||||
Bond Funds – 61.6% |
| |||||||
MFS Global Governments Portfolio – Initial Class | 3,284,305 | $ | 35,930,292 | |||||
MFS Government Securities Portfolio – Initial Class | 3,561,708 | 44,984,369 | ||||||
MFS High Yield Portfolio – Initial Class | 3,880,653 | 22,507,788 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class | 4,137,352 | 44,807,526 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 5,153,626 | 53,906,929 | ||||||
MFS Total Return Bond Series – Initial Class | 5,642,184 | 76,564,442 | ||||||
|
| |||||||
$ | 278,701,346 | |||||||
|
| |||||||
International Stock Funds – 8.0% | ||||||||
MFS International Growth Portfolio – Initial Class | 598,964 | $ | 9,044,353 | |||||
MFS International Intrinsic Value Portfolio – Initial Class | 307,471 | 9,005,836 | ||||||
MFS Research International Portfolio – Initial Class | 1,097,135 | 18,102,724 | ||||||
|
| |||||||
$ | 36,152,913 | |||||||
|
| |||||||
Specialty Funds – 2.0% | ||||||||
MFS Global Real Estate Portfolio – Initial Class | 575,026 | $ | 8,889,901 | |||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – continued |
| |||||||
U.S. Stock Funds – 28.0% | ||||||||
MFS Growth Series – Initial Class | 458,895 | $ | 27,139,047 | |||||
MFS Mid Cap Growth Series – Initial Class | 1,692,368 | 18,142,189 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 2,037,995 | 18,138,152 | ||||||
MFS New Discovery Series – Initial Class | 200,291 | 4,594,678 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 447,407 | 4,509,861 | ||||||
MFS Research Series – Initial Class | 896,542 | 27,120,386 | ||||||
MFS Value Series – Initial Class | 1,323,693 | 27,096,006 | ||||||
|
| |||||||
$ | 126,740,319 | |||||||
|
| |||||||
Money Market Funds – 0.4% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) | 1,660,074 | $ | 1,660,240 | |||||
|
| |||||||
Total Investment Companies (Identified Cost, $392,630,773) | $ | 452,144,719 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.0)% | (64,291 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 452,080,428 | ||||||
|
|
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $452,144,719. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-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 6/30/19 | ||||
Assets | ||||
Investments in affiliated issuers, at value (identified cost, $392,630,773) | $452,144,719 | |||
Receivables for | ||||
Investments sold | 297,670 | |||
Other assets | 1,496 | |||
Total assets | $452,443,885 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $297,669 | |||
Payable to affiliates | ||||
Administrator | 192 | |||
Shareholder servicing costs | 35 | |||
Distribution and/or service fees | 12,293 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 53,168 | |||
Total liabilities | $363,457 | |||
Net assets | $452,080,428 | |||
Net assets consist of | ||||
Paid-in capital | $360,517,000 | |||
Total distributable earnings (loss) | 91,563,428 | |||
Net assets | $452,080,428 | |||
Shares of beneficial interest outstanding | 38,210,911 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $1,945,606 | 164,650 | $11.82 | |||||||||
Service Class | 450,134,822 | 38,046,261 | 11.83 |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends from affiliated issuers | $20,116 | |||
Other | 84 | |||
Total investment income | $20,200 | |||
Expenses | ||||
Distribution and/or service fees | $558,353 | |||
Shareholder servicing costs | 2,981 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 6,089 | |||
Custodian fee | 4,053 | |||
Shareholder communications | 8,505 | |||
Audit and tax fees | 19,727 | |||
Legal fees | 2,091 | |||
Miscellaneous | 14,964 | |||
Total expenses | $625,442 | |||
Net investment income (loss) | $(605,242 | ) | ||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Affiliated issuers | $3,251,447 | |||
Change in unrealized appreciation or depreciation | ||||
Affiliated issuers | $46,749,867 | |||
Net realized and unrealized gain (loss) | $50,001,314 | |||
Change in net assets from operations | $49,396,072 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(605,242 | ) | $10,492,264 | |||||
Net realized gain (loss) | 3,251,447 | 21,412,589 | ||||||
Net unrealized gain (loss) | 46,749,867 | (45,032,933 | ) | |||||
Change in net assets from operations | $49,396,072 | $(13,128,080 | ) | |||||
Total distributions to shareholders | $— | $(30,510,928 | ) | |||||
Change in net assets from fund share transactions | $(42,365,582 | ) | $(66,228,101 | ) | ||||
Total change in net assets | $7,030,490 | $(109,867,109 | ) | |||||
Net assets | ||||||||
At beginning of period | 445,049,938 | 554,917,047 | ||||||
At end of period | $452,080,428 | $445,049,938 |
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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.58 | $11.61 | $10.95 | $11.09 | $11.79 | $11.61 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.00 | )(w) | $0.27 | $0.22 | $0.22 | (c) | $0.24 | $0.20 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.24 | (0.55 | ) | 1.02 | 0.36 | (0.27 | ) | 0.34 | ||||||||||||||||
Total from investment operations | $1.24 | $(0.28 | ) | $1.24 | $0.58 | $(0.03 | ) | $0.54 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.26 | ) | $(0.26 | ) | $(0.32 | ) | $(0.41 | ) | $(0.22 | ) | |||||||||||||
From net realized gain | — | (0.49 | ) | (0.32 | ) | (0.40 | ) | (0.26 | ) | (0.14 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.75 | ) | $(0.58 | ) | $(0.72 | ) | $(0.67 | ) | $(0.36 | ) | |||||||||||||
Net asset value, end of period (x) | $11.82 | $10.58 | $11.61 | $10.95 | $11.09 | $11.79 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 11.72 | (n) | (2.73 | ) | 11.48 | 5.03 | (c) | (0.19 | ) | 4.61 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.03 | (a) | 0.03 | 0.02 | 0.02 | (c) | 0.01 | 0.02 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.02 | ||||||||||||||||||
Net investment income (loss) (l) | (0.02 | )(a) | 2.34 | 1.94 | 1.92 | (c) | 2.06 | 1.66 | ||||||||||||||||
Portfolio turnover | 2 | (n) | 1 | 0 | (b) | 1 | 2 | 1 | ||||||||||||||||
Net assets at end of period (000 omitted) | $1,946 | $2,062 | $2,338 | $2,266 | $2,419 | $2,948 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.61 | $11.63 | $10.96 | $11.10 | $11.80 | $11.61 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.23 | $0.19 | $0.19 | (c) | $0.21 | $0.16 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.24 | (0.53 | ) | 1.02 | 0.35 | (0.28 | ) | 0.36 | ||||||||||||||||
Total from investment operations | $1.22 | $(0.30 | ) | $1.21 | $0.54 | $(0.07 | ) | $0.52 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.23 | ) | $(0.22 | ) | $(0.28 | ) | $(0.37 | ) | $(0.19 | ) | |||||||||||||
From net realized gain | — | (0.49 | ) | (0.32 | ) | (0.40 | ) | (0.26 | ) | (0.14 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.72 | ) | $(0.54 | ) | $(0.68 | ) | $(0.63 | ) | $(0.33 | ) | |||||||||||||
Net asset value, end of period (x) | $11.83 | $10.61 | $11.63 | $10.96 | $11.10 | $11.80 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 11.50 | (n) | (2.92 | ) | 11.24 | 4.73 | (c) | (0.49 | ) | 4.41 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.28 | (a) | 0.28 | 0.27 | 0.27 | (c) | 0.26 | 0.27 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.27 | ||||||||||||||||||
Net investment income (loss) (l) | (0.27 | )(a) | 2.05 | 1.63 | 1.66 | (c) | 1.80 | 1.36 | ||||||||||||||||
Portfolio turnover | 2 | (n) | 1 | 0 | (b) | 1 | 2 | 1 | ||||||||||||||||
Net assets at end of period (000 omitted) | $450,135 | $442,988 | $552,579 | $612,965 | $691,195 | $801,775 |
See Notes to Financial Statements
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MFS Conservative Allocation Portfolio
Financial Highlights – continued
(a) | Annualized. |
(b) | Less than 0.5%. |
(c) | Amount reflects aone-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
9
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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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/ormortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds’ shareholder reports are not covered by this report.
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 thefund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported 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 generally valued at the last daily bid quotation on their primary exchange as provided by athird-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
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MFS Conservative Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
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. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $452,144,719 | $— | $— | $452,144,719 |
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 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 ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income– Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally
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MFS Conservative Allocation Portfolio
Notes to Financial Statements (unaudited) – continued
accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on theex-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 theex-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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $10,086,518 | |||
Long-term capital gains | 20,424,410 | |||
Total distributions | $30,510,928 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $395,580,351 | |||
Gross appreciation | 58,976,121 | |||
Gross depreciation | (2,411,753 | ) | ||
Net unrealized appreciation (depreciation) | $56,564,368 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 10,552,629 | |||
Undistributed long-term capital gain | 21,800,224 | |||
Net unrealized appreciation (depreciation) | 9,814,503 |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $49,715 | $— | $92,819 | ||||||||||||
Service Class | — | 9,632,519 | — | 20,735,875 | ||||||||||||
Total | $— | $9,682,234 | $— | $20,828,694 |
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MFS Conservative Allocation Portfolio
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. 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, 2021. For the six months ended June 30, 2019, 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 Rule12b-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, 2019, the fee was $2,939, which equated to 0.0013% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $42.
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, 2019 was equivalent to an annual effective rate of 0.0039% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $533 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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, 2019, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $7,019,345 and $49,995,265, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 620 | $6,960 | 4,750 | $54,877 | ||||||||||||
Service Class | 136,850 | 1,566,764 | 368,488 | 4,244,692 | ||||||||||||
137,470 | $1,573,724 | 373,238 | $4,299,569 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 12,760 | $142,534 | ||||||||||||
Service Class | — | — | 2,709,045 | 30,368,394 | ||||||||||||
— | $— | 2,721,805 | $30,510,928 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (30,869 | ) | $(333,552 | ) | (24,024 | ) | $(272,696 | ) | ||||||||
Service Class | (3,852,814 | ) | (43,605,754 | ) | (8,825,257 | ) | (100,765,902 | ) | ||||||||
(3,883,683 | ) | $(43,939,306 | ) | (8,849,281 | ) | $(101,038,598 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (30,249 | ) | $(326,592 | ) | (6,514 | ) | $(75,285 | ) | ||||||||
Service Class | (3,715,964 | ) | (42,038,990 | ) | (5,747,724 | ) | (66,152,816 | ) | ||||||||
(3,746,213 | ) | $(42,365,582 | ) | (5,754,238 | ) | $(66,228,101 | ) |
(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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $1,415 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) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Global Governments Portfolio | $37,064,117 | $102,752 | $3,272,669 | $(175,776 | ) | $2,211,868 | $35,930,292 | |||||||||||||||||
MFS Global Real Estate Portfolio | 8,774,121 | 15,944 | 1,400,240 | 252,227 | 1,247,849 | 8,889,901 | ||||||||||||||||||
MFS Government Securities Portfolio | 46,065,959 | 133,528 | 3,370,428 | (347,498 | ) | 2,502,808 | 44,984,369 | |||||||||||||||||
MFS Growth Series | 24,981,612 | 1,089,972 | 5,157,437 | 1,946,163 | 4,278,737 | 27,139,047 | ||||||||||||||||||
MFS High Yield Portfolio | 22,389,339 | 13,936 | 2,019,639 | (189,711 | ) | 2,313,863 | 22,507,788 | |||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | 45,562,924 | 64,674 | 3,770,395 | 5,148 | 2,945,175 | 44,807,526 | ||||||||||||||||||
MFS Institutional Money Market Portfolio | 1,646,963 | 774,793 | 761,829 | 2 | 311 | 1,660,240 | ||||||||||||||||||
MFS International Growth Portfolio | 8,656,994 | 191,843 | 1,321,506 | 79,492 | 1,437,530 | 9,044,353 | ||||||||||||||||||
MFS International Intrinsic Value Portfolio | 8,708,429 | 159,476 | 1,296,864 | 440,750 | 994,045 | 9,005,836 | ||||||||||||||||||
MFS Limited Maturity Portfolio | 54,697,894 | 178,113 | 2,860,193 | 3,105 | 1,888,010 | 53,906,929 | ||||||||||||||||||
MFS Mid Cap Growth Series | 16,630,678 | 819,583 | 4,100,533 | 392,432 | 4,400,029 | 18,142,189 | ||||||||||||||||||
MFS Mid Cap Value Portfolio | 16,618,320 | 752,897 | 2,508,659 | (15,709 | ) | 3,291,303 | 18,138,152 | |||||||||||||||||
MFS New Discovery Series | 4,023,375 | 279,312 | 941,113 | 48,700 | 1,184,404 | 4,594,678 | ||||||||||||||||||
MFS New Discovery Value Portfolio | 4,073,567 | 249,735 | 602,214 | (42,241 | ) | 831,014 | 4,509,861 | |||||||||||||||||
MFS Research International Portfolio | 16,923,707 | 599,116 | 2,299,071 | 242,427 | 2,636,545 | 18,102,724 | ||||||||||||||||||
MFS Research Series | 25,210,129 | 1,009,598 | 4,343,040 | 293,659 | 4,950,040 | 27,120,386 | ||||||||||||||||||
MFS Total Return Bond Series | 77,896,999 | 84,190 | 6,804,354 | (300,594 | ) | 5,688,201 | 76,564,442 | |||||||||||||||||
MFS Value Series | 25,181,234 | 1,274,676 | 3,926,910 | 618,871 | 3,948,135 | 27,096,006 | ||||||||||||||||||
$445,106,361 | $7,794,138 | $50,757,094 | $3,251,447 | $46,749,867 | $452,144,719 | |||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Global Governments Portfolio | $— | $— | ||||||||||||||||||||||
MFS Global Real Estate Portfolio | — | — | ||||||||||||||||||||||
MFS Government Securities Portfolio | — | — | ||||||||||||||||||||||
MFS Growth Series | — | — | ||||||||||||||||||||||
MFS High Yield Portfolio | — | — | ||||||||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | — | — | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | 20,116 | — | ||||||||||||||||||||||
MFS International Growth Portfolio | — | — | ||||||||||||||||||||||
MFS International Intrinsic Value Portfolio | — | — | ||||||||||||||||||||||
MFS Limited Maturity Portfolio | — | — | ||||||||||||||||||||||
MFS Mid Cap Growth Series | — | — | ||||||||||||||||||||||
MFS Mid Cap Value Portfolio | — | — | ||||||||||||||||||||||
MFS New Discovery Series | — | — | ||||||||||||||||||||||
MFS New Discovery Value Portfolio | — | — | ||||||||||||||||||||||
MFS Research International Portfolio | — | — | ||||||||||||||||||||||
MFS Research Series | — | — | ||||||||||||||||||||||
MFS Total Return Bond Series | — | — | ||||||||||||||||||||||
MFS Value Series | �� | — | — | |||||||||||||||||||||
$20,116 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov.A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/vit3 by choosing 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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Table of Contents
Semiannual Report
June 30, 2019
MFS® Global Real Estate Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 Global Real Estate Portfolio
Portfolio structure
Top ten holdings | ||||
Public Storage, Inc., REIT | 4.4% | |||
Link REIT | 4.1% | |||
Prologis, Inc., REIT | 3.9% | |||
AvalonBay Communities, Inc., REIT | 3.2% | |||
Mid-America Apartment Communities, Inc., REIT | 3.0% | |||
Welltower, Inc., REIT | 3.0% | |||
Goodman Group, REIT | 3.0% | |||
Alexandria Real Estate Equities, Inc., REIT | 2.9% | |||
Simon Property Group, Inc., REIT | 2.6% | |||
STORE Capital Corp., REIT | 2.6% | |||
GICS equity industries (g) | ||||
Real Estate | 98.9% | |||
Consumer Discretionary | 0.3% |
Issuer country weightings (x) | ||||
United States | 53.8% | |||
Japan | 9.1% | |||
Hong Kong | 7.8% | |||
United Kingdom | 6.5% | |||
Australia | 4.9% | |||
Singapore | 3.7% | |||
Belgium | 3.2% | |||
Germany | 2.9% | |||
Canada | 2.5% | |||
Other Countries | 5.6% | |||
Currency exposure weightings (y) | ||||
United States Dollar | 53.8% | |||
Japanese Yen | 9.1% | |||
Euro | 8.5% | |||
Hong Kong Dollar | 7.8% | |||
British Pound Sterling | 6.5% | |||
Australian Dollar | 4.9% | |||
Singapore Dollar | 3.7% | |||
Canadian Dollar | 2.5% | |||
Norwegian Krone | 1.5% | |||
Other Currencies | 1.7% |
(g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. |
(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, 2019.
The portfolio is actively managed and current holdings may be different.
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MFS Global Real Estate Portfolio
Fund Expenses Borne by the Contract Holders during the Period,
January 1, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.92% | $1,000.00 | $1,180.15 | $4.97 | |||||||||||||
Hypothetical (h) | 0.92% | $1,000.00 | $1,020.23 | $4.61 | ||||||||||||||
Service Class | Actual | 1.17% | $1,000.00 | $1,179.30 | $6.32 | |||||||||||||
Hypothetical (h) | 1.17% | $1,000.00 | $1,018.99 | $5.86 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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MFS Global Real Estate Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 99.2% | ||||||||
Airlines – 1.7% |
| |||||||
Shurgard Self Storage S.A. | 76,211 | $ | 2,755,774 | |||||
|
| |||||||
Business Services – 2.0% |
| |||||||
Equinix, Inc., REIT | 6,612 | $ | 3,334,366 | |||||
|
| |||||||
Construction – 10.1% | ||||||||
American Homes 4 Rent, “A”, REIT | 142,908 | $ | 3,474,094 | |||||
AvalonBay Communities, Inc., REIT | 25,758 | 5,233,510 | ||||||
Daito Trust Construction Co., Ltd. | 20,000 | 2,547,883 | ||||||
Mid-America Apartment Communities, Inc., REIT | 42,225 | 4,972,416 | ||||||
Toll Brothers, Inc. | 11,748 | 430,212 | ||||||
|
| |||||||
$ | 16,658,115 | |||||||
|
| |||||||
Real Estate – 84.0% |
| |||||||
Advance Residence Investment Corp., REIT | 1,132 | $ | 3,365,079 | |||||
Alexandria Real Estate Equities, Inc., REIT | 33,849 | 4,775,755 | ||||||
Ascendas India Trust, REIT | 2,929,700 | 2,944,857 | ||||||
Atrium European Real Estate Ltd. | 197,805 | 737,751 | ||||||
Big Yellow Group PLC, REIT | 183,080 | 2,300,610 | ||||||
Boardwalk REIT | 134,469 | 4,090,905 | ||||||
Boston Properties, Inc., REIT | 28,650 | 3,695,850 | ||||||
Brixmor Property Group, Inc., REIT | 177,971 | 3,182,122 | ||||||
Central Pattana PLC, “A” | 333,300 | 815,114 | ||||||
Daiwa House Industry Co. Ltd. | 84,400 | 2,458,845 | ||||||
Derwent London PLC, REIT | 37,767 | 1,494,501 | ||||||
Entra ASA | 158,060 | 2,427,288 | ||||||
Equity Lifestyle Properties, Inc., REIT | 30,686 | 3,723,439 | ||||||
Farmland Partners, Inc., REIT | 66,917 | 471,765 | ||||||
Fortune REIT | 1,870,000 | 2,570,990 | ||||||
Goodman Group, REIT | 462,220 | 4,877,258 | ||||||
Grainger PLC | 495,085 | 1,544,168 | ||||||
Grand City Properties S.A. | 102,371 | 2,339,762 | ||||||
Hang Lung Properties Ltd. | 1,518,944 | 3,612,783 | ||||||
Industrial Logistics Properties Trust, REIT | 73,637 | 1,533,122 | ||||||
Japan Logistics Fund, Inc., REIT | 1,339 | 3,063,871 | ||||||
Kenedix Office Investment Corp., REIT | 502 | 3,589,872 | ||||||
LEG Immobilien AG | 20,945 | 2,362,603 | ||||||
Link REIT | 545,764 | 6,707,035 | ||||||
LondonMetric Property PLC, REIT | 682,221 | 1,828,075 | ||||||
Mapletree Logistics Trust, REIT | 2,743,623 | 3,224,213 | ||||||
Medical Properties Trust, Inc., REIT | 209,853 | 3,659,836 | ||||||
National Storage, REIT | 2,641,688 | 3,245,545 | ||||||
Prologis Property Mexico S.A. de C.V., REIT | 914,435 | 1,897,118 | ||||||
Prologis, Inc., REIT | 80,811 | 6,472,961 | ||||||
Public Storage, Inc., REIT | 30,508 | 7,266,090 | ||||||
Rexford Industrial Realty, Inc., REIT | 50,859 | 2,053,178 | ||||||
RPT Realty, REIT | 120,546 | 1,459,812 | ||||||
Shaftesbury PLC, REIT | 254,232 | 2,595,809 | ||||||
Simon Property Group, Inc., REIT | 27,078 | 4,325,981 | ||||||
STAG Industrial, Inc., REIT | 95,128 | 2,876,671 | ||||||
STORE Capital Corp., REIT | 127,220 | 4,222,432 | ||||||
Sun Communities, Inc., REIT | 29,857 | 3,827,369 | ||||||
Unibail-Rodamco-Westfield, REIT | 22,132 | 3,315,660 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Real Estate – continued |
| |||||||
Unite Group PLC, REIT | 72,438 | $ | 896,468 | |||||
Urban Edge Properties, REIT | 179,751 | 3,115,085 | ||||||
VICI Properties, Inc., REIT | 144,078 | 3,175,479 | ||||||
W.P. Carey, Inc., REIT | 34,427 | 2,794,784 | ||||||
Warehouses De Pauw S.C.A. | 15,052 | 2,533,114 | ||||||
Welltower, Inc., REIT | 60,143 | 4,903,459 | ||||||
|
| |||||||
$ | 138,374,484 | |||||||
|
| |||||||
Telecommunications – Wireless – 1.4% |
| |||||||
American Tower Corp., REIT | 10,812 | $ | 2,210,513 | |||||
|
| |||||||
Total Common Stocks (Identified Cost, $123,940,467) | $ | 163,333,252 | ||||||
|
| |||||||
INVESTMENT COMPANIES (h) – 1.0% |
| |||||||
Money Market Funds – 1.0% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $1,718,754) | 1,718,728 | $ | 1,718,900 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.2)% | (383,649 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 164,668,503 | ||||||
|
|
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $1,718,900 and $163,333,252, respectively. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
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MFS Global Real Estate 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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value (identified cost, $123,940,467) | $163,333,252 | |||
Investments in affiliated issuers, at value (identified cost, $1,718,754) | 1,718,900 | |||
Cash | 366,216 | |||
Foreign currency, at value (identified cost, $15,393) | 15,421 | |||
Receivables for | ||||
Fund shares sold | 11,711 | |||
Dividends | 852,454 | |||
Other assets | 704 | |||
Total assets | $166,298,658 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $1,489,819 | |||
Fund shares reacquired | 59,176 | |||
Payable to affiliates | ||||
Investment adviser | 3,126 | |||
Administrative services fee | 357 | |||
Shareholder servicing costs | 39 | |||
Distribution and/or service fees | 1,588 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 75,950 | |||
Total liabilities | $1,630,155 | |||
Net assets | $164,668,503 | |||
Net assets consist of | ||||
Paid-in capital | $118,651,493 | |||
Total distributable earnings (loss) | 46,017,010 | |||
Net assets | $164,668,503 | |||
Shares of beneficial interest outstanding | 10,139,303 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $106,368,949 | 6,880,451 | $15.46 | |||||||||
Service Class | 58,299,554 | 3,258,852 | 17.89 |
See Notes to Financial Statements
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MFS Global Real Estate 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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends | $3,352,480 | |||
Dividends from affiliated issuers | 15,971 | |||
Other | 10,877 | |||
Foreign taxes withheld | (152,518 | ) | ||
Total investment income | $3,226,810 | |||
Expenses | ||||
Management fee | $734,779 | |||
Distribution and/or service fees | 71,762 | |||
Shareholder servicing costs | 3,429 | |||
Administrative services fee | 16,645 | |||
Independent Trustees’ compensation | 3,010 | |||
Custodian fee | 16,550 | |||
Shareholder communications | 12,643 | |||
Audit and tax fees | 27,863 | |||
Legal fees | 779 | |||
Miscellaneous | 14,407 | |||
Total expenses | $901,867 | |||
Reduction of expenses by investment adviser | (77,094 | ) | ||
Net expenses | $824,773 | |||
Net investment income (loss) | $2,402,037 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $1,951,006 | |||
Affiliated issuers | 341 | |||
Foreign currency | 7,891 | |||
Net realized gain (loss) | $1,959,238 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $22,521,415 | |||
Affiliated issuers | 146 | |||
Translation of assets and liabilities in foreign currencies | 2,056 | |||
Net unrealized gain (loss) | $22,523,617 | |||
Net realized and unrealized gain (loss) | $24,482,855 | |||
Change in net assets from operations | $26,884,892 |
See Notes to Financial Statements
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MFS Global Real Estate Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
Six months ended 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $2,402,037 | $4,976,535 | ||||||
Net realized gain (loss) | 1,959,238 | 1,499,569 | ||||||
Net unrealized gain (loss) | 22,523,617 | (11,199,132 | ) | |||||
Change in net assets from operations | $26,884,892 | $(4,723,028 | ) | |||||
Total distributions to shareholders | $— | $(8,750,189 | ) | |||||
Change in net assets from fund share transactions | $(15,619,657 | ) | $(17,488,780 | ) | ||||
Total change in net assets | $11,265,235 | $(30,961,997 | ) | |||||
Net assets | ||||||||
At beginning of period | 153,403,268 | 184,365,265 | ||||||
At end of period | $164,668,503 | $153,403,268 |
See Notes to Financial Statements
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MFS Global Real Estate Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the 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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $13.10 | $14.27 | $14.01 | $13.55 | $14.06 | $12.43 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.22 | $0.42 | $0.37 | $0.37 | (c) | $0.29 | $0.26 | |||||||||||||||||
Net realized and unrealized gain (loss) | 2.14 | (0.79 | ) | 1.42 | 0.74 | (0.23 | ) | 1.68 | ||||||||||||||||
Total from investment operations | $2.36 | $(0.37 | ) | $1.79 | $1.11 | $0.06 | $1.94 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.58 | ) | $(0.63 | ) | $(0.39 | ) | $(0.57 | ) | $(0.31 | ) | |||||||||||||
From net realized gain | — | (0.22 | ) | (0.90 | ) | (0.26 | ) | — | — | |||||||||||||||
Total distributions declared to shareholders | $— | $(0.80 | ) | $(1.53 | ) | $(0.65 | ) | $(0.57 | ) | $(0.31 | ) | |||||||||||||
Net asset value, end of period (x) | $15.46 | $13.10 | $14.27 | $14.01 | $13.55 | $14.06 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 18.02 | (n) | (3.03 | ) | 13.33 | 7.94 | (c) | 0.74 | 15.62 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.02 | (a) | 1.01 | 1.00 | 0.97 | (c) | 1.00 | 0.98 | ||||||||||||||||
Expenses after expense reductions (f) | 0.92 | (a) | 0.92 | 0.92 | 0.91 | (c) | 0.94 | 0.95 | ||||||||||||||||
Net investment income (loss) | 3.02 | (a) | 3.00 | 2.56 | 2.63 | (c) | 2.11 | 1.93 | ||||||||||||||||
Portfolio turnover | 16 | (n) | 24 | 24 | 30 | 40 | 25 | |||||||||||||||||
Net assets at end of period (000 omitted) | $106,369 | $99,826 | $114,198 | $115,023 | $124,563 | $143,090 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $15.17 | $16.41 | $15.89 | $15.28 | $15.77 | $13.91 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.24 | $0.44 | $0.38 | $0.38 | (c) | $0.29 | $0.25 | |||||||||||||||||
Net realized and unrealized gain (loss) | 2.48 | (0.93 | ) | 1.62 | 0.83 | (0.25 | ) | 1.88 | ||||||||||||||||
Total from investment operations | $2.72 | $(0.49 | ) | $2.00 | $1.21 | $0.04 | $2.13 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.53 | ) | $(0.58 | ) | $(0.34 | ) | $(0.53 | ) | $(0.27 | ) | |||||||||||||
From net realized gain | — | (0.22 | ) | (0.90 | ) | (0.26 | ) | — | — | |||||||||||||||
Total distributions declared to shareholders | $— | $(0.75 | ) | $(1.48 | ) | $(0.60 | ) | $(0.53 | ) | $(0.27 | ) | |||||||||||||
Net asset value, end of period (x) | $17.89 | $15.17 | $16.41 | $15.89 | $15.28 | $15.77 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 17.93 | (n) | (3.33 | ) | 13.07 | 7.70 | (c) | 0.47 | 15.31 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.27 | (a) | 1.26 | 1.25 | 1.22 | (c) | 1.25 | 1.23 | ||||||||||||||||
Expenses after expense reductions (f) | 1.17 | (a) | 1.17 | 1.17 | 1.16 | (c) | 1.19 | 1.20 | ||||||||||||||||
Net investment income (loss) | 2.78 | (a) | 2.74 | 2.31 | 2.37 | (c) | 1.84 | 1.67 | ||||||||||||||||
Portfolio turnover | 16 | (n) | 24 | 24 | 30 | 40 | 25 | |||||||||||||||||
Net assets at end of period (000 omitted) | $58,300 | $53,577 | $70,167 | $75,253 | $83,135 | $99,204 |
See Notes to Financial Statements
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MFS Global Real Estate Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests a significant amount of its net assets in U.S. and foreign real estate related investments and as a result is subject to certain risks associated with the direct ownership of real estate and the real estate industry in general. These include risks related to general, regional and local economic conditions; difficulties in valuing and disposing of real estate; fluctuations in interest rates and property tax rates, shifts in zoning laws, environmental regulations and other governmental action; cash flow dependency; increased operating expenses; lack of availability of mortgage funds; losses due to natural disasters; overbuilding; losses due to casualty or condemnation; changes in property values and rental rates; the management skill and creditworthiness of the manager; and other factors. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value.Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of
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MFS Global Real Estate Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
United States | $87,190,301 | $— | $— | $87,190,301 | ||||||||||||
Japan | 15,025,550 | — | — | 15,025,550 | ||||||||||||
Hong Kong | 12,890,808 | — | — | 12,890,808 | ||||||||||||
United Kingdom | 10,659,631 | — | — | 10,659,631 | ||||||||||||
Australia | 8,122,803 | — | — | 8,122,803 | ||||||||||||
Singapore | 6,169,071 | — | — | 6,169,071 | ||||||||||||
Belgium | 5,288,887 | — | — | 5,288,887 | ||||||||||||
Germany | 4,702,365 | — | — | 4,702,365 | ||||||||||||
Canada | 4,090,905 | — | — | 4,090,905 | ||||||||||||
Other Countries | 8,377,817 | 815,114 | — | 9,192,931 | ||||||||||||
Mutual Funds | 1,718,900 | — | — | 1,718,900 | ||||||||||||
Total | $164,237,038 | $815,114 | $— | $165,052,152 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation–Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income– Investment transactions are recorded on the trade date. Dividends received in cash are recorded on theex-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 theex-dividend date. Dividend payments received in additional securities are recorded on theex-dividend date in an amount equal to the value of the security on such date. Distributions from REITs may be characterized as ordinary income, net capital gain, or a return of capital to the fund. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, estimates are used in reporting the character of income and distributions for financial statement purposes. The fund receives substantial distributions from holdings in REITs.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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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 theex-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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $7,658,174 | |||
Long-term capital gains | 1,092,015 | |||
Total distributions | $8,750,189 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $130,390,125 | |||
Gross appreciation | 37,945,201 | |||
Gross depreciation | (3,283,174 | ) | ||
Net unrealized appreciation (depreciation) | $34,662,027 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 5,927,934 | |||
Undistributed long-term capital gain | 1,065,566 | |||
Other temporary differences | (1,848 | ) | ||
Net unrealized appreciation (depreciation) | 12,140,466 |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $4,260,240 | $— | $1,614,103 | ||||||||||||
Service Class | — | 2,035,835 | — | 840,011 | ||||||||||||
Total | $— | $6,296,075 | $— | $2,454,114 |
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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 based on the fund’s average daily net assets:
Up to $1 billion | 0.90% | |||
In excess of $1 billion and up to $2.5 billion | 0.75% | |||
In excess of $2.5 billion | 0.65% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2019, this management fee reduction amounted to $7,888, 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, 2019 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, 2021. For the six months ended June 30, 2019, this reduction amounted to $69,206, 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 Rule12b-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, 2019, the fee was $3,269, which equated to 0.0040% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $160.
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, 2019 was equivalent to an annual effective rate of 0.0204% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $193 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser orsub-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 Rule17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2019, the fund engaged in sale transactions pursuant to this policy, which amounted to $29,260. The sales transactions resulted in net realized gains (losses) of $(5,703).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2019, this reimbursement amounted to $10,838, which is included in “Other” income in the Statement of Operations.
(4) | Portfolio Securities |
For the six months ended June 30, 2019, purchases and sales of investments, other than short-term obligations, aggregated $25,931,445 and $35,325,246, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 81,502 | $1,164,772 | 638,619 | $8,607,350 | ||||||||||||
Service Class | 134,263 | 2,357,438 | 302,157 | 4,766,175 | ||||||||||||
215,765 | $3,522,210 | 940,776 | $13,373,525 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 414,270 | $5,874,343 | ||||||||||||
Service Class | — | — | 174,930 | 2,875,846 | ||||||||||||
— | $— | 589,200 | $8,750,189 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (823,463 | ) | $(12,132,465 | ) | (1,431,815 | ) | $(20,009,623 | ) | ||||||||
Service Class | (406,309 | ) | (7,009,402 | ) | (1,221,838 | ) | (19,602,871 | ) | ||||||||
(1,229,772 | ) | $(19,141,867 | ) | (2,653,653 | ) | $(39,612,494 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (741,961 | ) | $(10,967,693 | ) | (378,926 | ) | $(5,527,930 | ) | ||||||||
Service Class | (272,046 | ) | (4,651,964 | ) | (744,751 | ) | (11,960,850 | ) | ||||||||
(1,014,007 | ) | $(15,619,657 | ) | (1,123,677 | ) | $(17,488,780 | ) |
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 26%, 11%, and 5%, 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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $484 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) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $4,741,034 | $14,678,657 | $17,701,278 | $341 | $146 | $1,718,900 | ||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | $15,971 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov.A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/vit3by choosing 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, 2019
MFS® Growth Allocation Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 Growth Series | 11.0% | |||
MFS Value Series | 11.0% | |||
MFS Research Series | 10.0% | |||
MFS Mid Cap Value Portfolio | 9.1% | |||
MFS Mid Cap Growth Series | 9.1% | |||
MFS Research International Portfolio | 9.0% | |||
MFS International Growth Portfolio | 5.0% | |||
MFS International Intrinsic Value Portfolio | 5.0% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Total Return Bond Series | 5.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 4.9% | |||
MFS Global Real Estate Portfolio | 4.9% | |||
MFS Global Governments Portfolio | 4.0% | |||
MFS New Discovery Series | 2.0% | |||
MFS New Discovery Value Portfolio | 2.0% | |||
MFS Limited Maturity Portfolio | 1.9% | |||
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. MFS endeavors to fully invest all MFSfunds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFSfunds-of-funds’ subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFSfunds-of-funds’ Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the Statements 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, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.03% | $1,000.00 | $1,181.39 | $0.16 | |||||||||||||
Hypothetical (h) | 0.03% | $1,000.00 | $1,024.65 | $0.15 | ||||||||||||||
Service Class | Actual | 0.28% | $1,000.00 | $1,180.28 | $1.51 | |||||||||||||
Hypothetical (h) | 0.28% | $1,000.00 | $1,023.41 | $1.40 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – 100.0% |
| |||||||
Bond Funds – 20.8% |
| |||||||
MFS Global Governments Portfolio – Initial Class | 1,307,143 | $ | 14,300,143 | |||||
MFS High Yield Portfolio – Initial Class | 3,080,590 | 17,867,425 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class | 1,639,396 | 17,754,656 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 674,464 | 7,054,895 | ||||||
MFS Total Return Bond Series – Initial Class | 1,315,555 | 17,852,076 | ||||||
|
| |||||||
$ | 74,829,195 | |||||||
|
| |||||||
International Stock Funds – 20.0% |
| |||||||
MFS Emerging Markets Equity Portfolio – Initial Class | 214,334 | $ | 3,568,657 | |||||
MFS International Growth Portfolio – Initial Class | 1,195,274 | 18,048,639 | ||||||
MFS International Intrinsic Value Portfolio – Initial Class | 612,441 | 17,938,405 | ||||||
MFS Research International Portfolio – Initial Class | 1,969,669 | 32,499,536 | ||||||
|
| |||||||
$ | 72,055,237 | |||||||
|
| |||||||
Specialty Funds – 4.9% |
| |||||||
MFS Global Real Estate Portfolio – Initial Class | 1,145,571 | $ | 17,710,530 | |||||
|
| |||||||
U.S. Stock Funds – 54.2% |
| |||||||
MFS Growth Series – Initial Class | 670,634 | $ | 39,661,307 | |||||
MFS Mid Cap Growth Series – Initial Class | 3,037,744 | 32,564,617 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 3,660,381 | 32,577,393 | ||||||
MFS New Discovery Series – Initial Class | 320,230 | 7,346,060 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 715,039 | 7,207,595 | ||||||
MFS Research Series – Initial Class | 1,191,090 | 36,030,478 | ||||||
MFS Value Series – Initial Class | 1,936,590 | 39,641,985 | ||||||
|
| |||||||
$ | 195,029,435 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – continued |
| |||||||
Money Market Funds – 0.1% |
| |||||||
MFS Institutional Money Market Portfolio, 2.42% (v) | 264,960 | $ | 264,987 | |||||
|
| |||||||
Total Investment Companies (Identified Cost, $267,730,006) | $ | 359,889,384 | ||||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.0)% | (53,747 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 359,835,637 | ||||||
|
|
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $359,889,384. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-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 6/30/19 | ||||
Assets | ||||
Investments in affiliated issuers, at value (identified cost, $267,730,006) | $359,889,384 | |||
Receivables for | ||||
Investments sold | 236,743 | |||
Fund shares sold | 11,455 | |||
Other assets | 1,239 | |||
Total assets | $360,138,821 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $248,198 | |||
Payable to affiliates | ||||
Administrator | 192 | |||
Shareholder servicing costs | 31 | |||
Distribution and/or service fees | 9,691 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 44,972 | |||
Total liabilities | $303,184 | |||
Net assets | $359,835,637 | |||
Net assets consist of | ||||
Paid-in capital | $225,294,678 | |||
Total distributable earnings (loss) | 134,540,959 | |||
Net assets | $359,835,637 | |||
Shares of beneficial interest outstanding | 28,625,022 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $3,938,407 | 313,232 | $12.57 | |||||||||
Service Class | 355,897,230 | 28,311,790 | 12.57 |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends from affiliated issuers | $3,287 | |||
Expenses | ||||
Distribution and/or service fees | $436,356 | |||
Shareholder servicing costs | 2,499 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 5,970 | |||
Custodian fee | 3,168 | |||
Shareholder communications | 6,480 | |||
Audit and tax fees | 19,705 | |||
Legal fees | 1,627 | |||
Miscellaneous | 13,745 | |||
Total expenses | $498,229 | |||
Net investment income (loss) | $(494,942 | ) | ||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Affiliated issuers | $4,843,541 | |||
Change in unrealized appreciation or depreciation | ||||
Affiliated issuers | $54,151,865 | |||
Net realized and unrealized gain (loss) | $58,995,406 | |||
Change in net assets from operations | $58,500,464 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(494,942 | ) | $7,018,153 | |||||
Net realized gain (loss) | 4,843,541 | 32,678,338 | ||||||
Net unrealized gain (loss) | 54,151,865 | (57,580,295 | ) | |||||
Change in net assets from operations | $58,500,464 | $(17,883,804 | ) | |||||
Total distributions to shareholders | $— | $(30,865,393 | ) | |||||
Change in net assets from fund share transactions | $(32,754,812 | ) | $(37,200,488 | ) | ||||
Total change in net assets | $25,745,652 | $(85,949,685 | ) | |||||
Net assets | ||||||||
At beginning of period | 334,089,985 | 420,039,670 | ||||||
At end of period | $359,835,637 | $334,089,985 |
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 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.64 | $12.21 | $10.97 | $11.27 | $12.42 | $12.19 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.00 | )(w) | $0.26 | $0.21 | $0.20 | (c) | $0.21 | $0.16 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.93 | (0.78 | ) | 1.91 | 0.62 | (0.19 | ) | 0.50 | ||||||||||||||||
Total from investment operations | $1.93 | $(0.52 | ) | $2.12 | $0.82 | $0.02 | $0.66 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.23 | ) | $(0.23 | ) | $(0.32 | ) | $(0.58 | ) | $(0.21 | ) | |||||||||||||
From net realized gain | — | (0.82 | ) | (0.65 | ) | (0.80 | ) | (0.59 | ) | (0.22 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.05 | ) | $(0.88 | ) | $(1.12 | ) | $(1.17 | ) | $(0.43 | ) | |||||||||||||
Net asset value, end of period (x) | $12.57 | $10.64 | $12.21 | $10.97 | $11.27 | $12.42 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 18.14 | (n) | (5.20 | ) | 19.86 | 7.15 | (c) | 0.53 | 5.39 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.03 | (a) | 0.03 | 0.03 | 0.03 | (c) | 0.02 | 0.03 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.03 | ||||||||||||||||||
Net investment income (loss) (l) | (0.03 | )(a) | 2.13 | 1.75 | 1.81 | (c) | 1.75 | 1.29 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 2 | 2 | 1 | 1 | 1 | |||||||||||||||||
Net assets at end of period (000 omitted) | $3,938 | $3,770 | $4,116 | $3,140 | $2,908 | $2,939 | ||||||||||||||||||
Service Class | Six months ended | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.65 | $12.22 | $10.98 | $11.27 | $12.41 | $12.19 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.22 | $0.17 | $0.17 | (c) | $0.17 | $0.12 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.94 | (0.77 | ) | 1.92 | 0.63 | (0.18 | ) | 0.50 | ||||||||||||||||
Total from investment operations | $1.92 | $(0.55 | ) | $2.09 | $0.80 | $(0.01 | ) | $0.62 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.20 | ) | $(0.20 | ) | $(0.29 | ) | $(0.54 | ) | $(0.18 | ) | |||||||||||||
From net realized gain | — | (0.82 | ) | (0.65 | ) | (0.80 | ) | (0.59 | ) | (0.22 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.02 | ) | $(0.85 | ) | $(1.09 | ) | $(1.13 | ) | $(0.40 | ) | |||||||||||||
Net asset value, end of period (x) | $12.57 | $10.65 | $12.22 | $10.98 | $11.27 | $12.41 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 18.03 | (n) | (5.46 | ) | 19.51 | 6.94 | (c) | 0.30 | 5.04 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.28 | (a) | 0.28 | 0.28 | 0.28 | (c) | 0.27 | 0.28 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.28 | ||||||||||||||||||
Net investment income (loss) (l) | (0.28 | )(a) | 1.80 | 1.40 | 1.50 | (c) | 1.40 | 1.00 | ||||||||||||||||
Portfolio turnover | 0 | (b)(n) | 2 | 2 | 1 | 1 | 1 | |||||||||||||||||
Net assets at end of period (000 omitted) | $355,897 | $330,320 | $415,923 | $420,657 | $468,237 | $538,164 |
See Notes to Financial Statements
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Financial Highlights – continued
(a) | Annualized. |
(b) | Less than 0.5%. |
(c) | Amount reflects aone-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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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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds’ shareholder reports are not covered by this report.
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 thefund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported 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 generally valued at the last daily bid quotation on their primary exchange as provided by athird-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
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Notes to Financial Statements (unaudited) – continued
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. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $359,889,384 | $— | $— | $359,889,384 |
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 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 ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income– Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally
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accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on theex-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 theex-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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $6,786,173 | |||
Long-term capital gains | 24,079,220 | |||
Total distributions | $30,865,393 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $269,377,062 | |||
Gross appreciation | 90,856,704 | |||
Gross depreciation | (344,382 | ) | ||
Net unrealized appreciation (depreciation) | $90,512,322 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 7,017,005 | |||
Undistributed long-term capital gain | 32,663,033 | |||
Net unrealized appreciation (depreciation) | 36,360,457 |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $77,625 | $— | $274,764 | ||||||||||||
Service Class | — | 5,898,467 | — | 24,614,537 | ||||||||||||
Total | $— | $5,976,092 | $— | $24,889,301 |
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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. 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, 2021. For the six months ended June 30, 2019, 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 Rule12b-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, 2019, the fee was $2,450, which equated to 0.0014% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $49.
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, 2019 was equivalent to an annual effective rate of 0.0049% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $417 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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, 2019, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $910,553 and $34,153,587, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 8,123 | $96,732 | 13,965 | $169,132 | ||||||||||||
Service Class | 87,554 | 1,028,006 | 658,752 | 7,641,180 | ||||||||||||
95,677 | $1,124,738 | 672,717 | $7,810,312 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 29,489 | $352,389 | ||||||||||||
Service Class | — | — | 2,549,123 | 30,513,004 | ||||||||||||
— | $— | 2,578,612 | $30,865,393 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (49,291 | ) | $(599,866 | ) | (26,098 | ) | $(312,340 | ) | ||||||||
Service Class | (2,793,869 | ) | (33,279,684 | ) | (6,219,141 | ) | (75,563,853 | ) | ||||||||
(2,843,160 | ) | $(33,879,550 | ) | (6,245,239 | ) | $(75,876,193 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (41,168 | ) | $(503,134 | ) | 17,356 | $209,181 | ||||||||||
Service Class | (2,706,315 | ) | (32,251,678 | ) | (3,011,266 | ) | (37,409,669 | ) | ||||||||
(2,747,483 | ) | $(32,754,812 | ) | (2,993,910 | ) | $(37,200,488 | ) |
(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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $1,055 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) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Emerging Markets Equity Portfolio | $3,390,469 | $8,641 | $256,512 | $23,027 | $403,032 | $3,568,657 | ||||||||||||||||||
MFS Global Governments Portfolio | 13,919,268 | 198,972 | 615,099 | (30,709 | ) | 827,711 | 14,300,143 | |||||||||||||||||
MFS Global Real Estate Portfolio | 16,711,826 | 17,103 | 1,936,660 | 389,328 | 2,528,933 | 17,710,530 | ||||||||||||||||||
MFS Growth Series | 36,489,353 | 13,944 | 5,823,837 | 2,381,613 | 6,600,234 | 39,661,307 | ||||||||||||||||||
MFS High Yield Portfolio | 16,913,547 | 87,436 | 776,338 | (67,194 | ) | 1,709,974 | 17,867,425 | |||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | 17,142,907 | 216,728 | 745,189 | 6,321 | 1,133,889 | 17,754,656 | ||||||||||||||||||
MFS Institutional Money Market Portfolio | 265,700 | 605,544 | 606,296 | (5 | ) | 44 | 264,987 | |||||||||||||||||
MFS International Growth Portfolio | 16,866,121 | 8,781 | 1,795,041 | 34,265 | 2,934,513 | 18,048,639 | ||||||||||||||||||
MFS International Intrinsic Value Portfolio | 16,832,584 | 33,018 | 1,735,115 | 683,830 | 2,124,088 | 17,938,405 | ||||||||||||||||||
MFS Limited Maturity Portfolio | 6,862,313 | 98,665 | 151,061 | 1,340 | 243,638 | 7,054,895 | ||||||||||||||||||
MFS Mid Cap Growth Series | 29,834,478 | 14 | 5,740,516 | 384,247 | 8,086,394 | 32,564,617 | ||||||||||||||||||
MFS Mid Cap Value Portfolio | 29,499,667 | 7,218 | 2,682,555 | (51,084 | ) | 5,804,147 | 32,577,393 | |||||||||||||||||
MFS New Discovery Series | 6,538,988 | 4,081 | 1,142,355 | 53,943 | 1,891,403 | 7,346,060 | ||||||||||||||||||
MFS New Discovery Value Portfolio | 6,517,153 | 19,576 | 562,001 | (41,204 | ) | 1,274,071 | 7,207,595 | |||||||||||||||||
MFS Research International Portfolio | 29,974,372 | 5,599 | 2,552,283 | 213,945 | 4,857,903 | 32,499,536 | ||||||||||||||||||
MFS Research Series | 33,003,221 | 946 | 3,812,550 | 228,530 | 6,610,331 | 36,030,478 | ||||||||||||||||||
MFS Total Return Bond Series | 17,243,017 | 157,327 | 786,840 | (38,237 | ) | 1,276,809 | 17,852,076 | |||||||||||||||||
MFS Value Series | 36,132,780 | 32,504 | 3,039,635 | 671,585 | 5,844,751 | 39,641,985 | ||||||||||||||||||
$334,137,764 | $1,516,097 | $34,759,883 | $4,843,541 | $54,151,865 | $359,889,384 | |||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Emerging Markets Equity Portfolio | $— | $— | ||||||||||||||||||||||
MFS Global Governments Portfolio | — | — | ||||||||||||||||||||||
MFS Global Real Estate Portfolio | — | — | ||||||||||||||||||||||
MFS Growth Series | — | — | ||||||||||||||||||||||
MFS High Yield Portfolio | — | — | ||||||||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | — | — | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | 3,287 | — | ||||||||||||||||||||||
MFS International Growth Portfolio | — | — | ||||||||||||||||||||||
MFS International Intrinsic Value Portfolio | — | — | ||||||||||||||||||||||
MFS Limited Maturity Portfolio | — | — | ||||||||||||||||||||||
MFS Mid Cap Growth Series | — | — | ||||||||||||||||||||||
MFS Mid Cap Value Portfolio | — | — | ||||||||||||||||||||||
MFS New Discovery Series | — | — | ||||||||||||||||||||||
MFS New Discovery Value Portfolio | — | — | ||||||||||||||||||||||
MFS Research International Portfolio | — | — | ||||||||||||||||||||||
MFS Research Series | — | — | ||||||||||||||||||||||
MFS Total Return Bond Series | — | — | ||||||||||||||||||||||
MFS Value Series | — | — | ||||||||||||||||||||||
$3,287 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/vit3by choosing 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, 2019
MFS® Inflation-Adjusted Bond Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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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MFS Inflation-Adjusted Bond Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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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Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio structure (i)
Fixed income sectors (i) | ||||
Non-U.S. Government Bonds | 46.2% | |||
U.S. Treasury Securities | 45.8% | |||
Collateralized Debt Obligations | 1.7% | |||
Emerging Markets Bonds | 0.6% | |||
Investment Grade Corporates | 0.3% | |||
Mortgage-Backed Securities (o) | 0.0% | |||
Composition including fixed income credit quality (a)(i) |
| |||
AAA | 6.7% | |||
AA | 29.0% | |||
A | 3.0% | |||
BBB | 7.5% | |||
B | 0.6% | |||
U.S. Government | 45.8% | |||
Federal Agencies (o) | 0.0% | |||
Not Rated | 2.0% | |||
Cash & Cash Equivalents | 5.5% | |||
Other | (0.1)% |
Portfolio facts (i) | ||||
Average Duration (d) | 9.3 | |||
Average Effective Maturity (m) | 14.8 yrs. | |||
Issuer country weightings (i)(x) | ||||
United States | 53.2% | |||
United Kingdom | 24.7% | |||
Spain | 6.6% | |||
Australia | 3.2% | |||
Japan | 3.0% | |||
New Zealand | 2.7% | |||
Canada | 2.2% | |||
Portugal | 1.6% | |||
Italy | 0.9% | |||
Other Countries | 1.9% | |||
Currency exposure weightings (i)(y) | ||||
United States Dollar | 44.1% | |||
British Pound Sterling | 28.7% | |||
Euro | 18.9% | |||
Japanese Yen | 5.6% | |||
Canadian Dollar | 2.0% | |||
Norwegian Krone | 1.0% | |||
Swedish Krona | 0.4% | |||
Danish Krone | 0.2% | |||
Australian Dollar | (0.9)% |
(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 and fixed income derivatives, 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 a5-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. |
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Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio Composition – continued
(m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put,pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
(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. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30, 2019.
The portfolio is actively managed and current holdings may be different.
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MFS Inflation-Adjusted Bond Portfolio
Fund Expenses Borne by the Contract Holders during the Period, January 1, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.56% | $1,000.00 | $1,067.00 | $2.87 | |||||||||||||
Hypothetical (h) | 0.56% | $1,000.00 | $1,022.02 | $2.81 | ||||||||||||||
Service Class | Actual | 0.81% | $1,000.00 | $1,065.80 | $4.15 | |||||||||||||
Hypothetical (h) | 0.81% | $1,000.00 | $1,020.78 | $4.06 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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MFS Inflation-Adjusted Bond Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
BONDS – 94.2% | ||||||||
Asset-Backed & Securitized – 1.7% |
| |||||||
Dryden Senior Loan Fund,2018-55A, “A1”, CLO, FLR, 3.616% (LIBOR - 3mo. + 1.02%), 4/15/2031 (n) | $ | 725,000 | $ | 718,460 | ||||
Loomis, Sayles & Co., CLO, “A2”, FLR, 3.996% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n) | 854,664 | 848,213 | ||||||
Madison Park Funding Ltd.,2014-13A, “BR2”, FLR, 4.091% (LIBOR - 3mo. + | ||||||||
1.5%), 4/19/2030 (n) | 901,666 | 893,150 | ||||||
Symphony CLO Ltd.,2016-17A, “BR”, FLR, 3.796% (LIBOR - 3mo. + 1.2%), 4/15/2028 (n) | 764,124 | 760,769 | ||||||
TICP CLO Ltd., FLR, 3.431% (LIBOR - 3mo. + 0.8%), 4/20/2028 (n) | 1,283,440 | 1,274,984 | ||||||
|
| |||||||
$ | 4,495,576 | |||||||
|
| |||||||
Conglomerates – 0.0% | ||||||||
United Technologies Corp., 3.95%, 8/16/2025 | $ | 82,000 | $ | 88,429 | ||||
|
| |||||||
Emerging Market Sovereign – 0.6% |
| |||||||
Hellenic Republic, 3.875%, 3/12/2029 | EUR | 1,250,000 | $ | 1,593,860 | ||||
|
| |||||||
International Market Sovereign – 46.0% |
| |||||||
Commonwealth of Australia, Inflation Linked Bond, 3%, 9/20/2025 | AUD | 2,389,145 | $ | 2,001,483 | ||||
Commonwealth of Australia, Inflation Linked Bond, 0.75%, 11/21/2027 | 1,242,000 | 928,871 | ||||||
Commonwealth of Australia, Inflation Linked Bond, 2.5%, 9/20/2030 | 3,460,032 | 3,100,193 | ||||||
Commonwealth of Australia, Inflation Linked Bond, 2%, 8/21/2035 | 1,339,560 | 1,212,586 | ||||||
Commonwealth of Australia, Inflation Linked Bond, 1.25%, 8/21/2040 | 1,553,240 | 1,294,576 | ||||||
Government of Canada, Inflation Linked Bond, 4.25%, 12/01/2026 | CAD | 255,506 | 255,082 | |||||
Government of Canada, Inflation Linked Bond, 4%, 12/01/2031 | 937,598 | 1,048,415 | ||||||
Government of Canada, Inflation Linked Bond, 3%, 12/01/2036 | 3,228,623 | 3,581,650 | ||||||
Government of Canada, Inflation Linked Bond, 2%, 12/01/2041 | 991,707 | 1,020,848 | ||||||
Government of Japan, Inflation Linked Bond, 0.1%, 3/10/2026 | JPY | 823,105,800 | 7,919,398 | |||||
Government of New Zealand, Inflation Linked Bond, 3%, 9/20/2030 | NZD | 6,867,200 | 5,793,563 | |||||
Government of New Zealand, Inflation Linked Bond, 2.5%, 9/20/2035 | 1,688,480 | 1,425,615 | ||||||
Kingdom of Spain, Inflation Linked Bond, 0.65%, 11/30/2027 | EUR | 5,340,211 | 6,751,451 | |||||
Kingdom of Spain, Inflation Linked Bond, 1%, 11/30/2030 | 4,174,855 | 5,546,880 | ||||||
Kingdom of Spain, Inflation Linked Bond, 0.7%, 11/30/2033 (z) | 3,956,606 | 5,108,473 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
International Market Sovereign – continued |
| |||||||
Kingdom of Sweden, Inflation Linked Bond, 3.5%, 12/01/2028 | SEK | 8,476,650 | $ | 1,429,330 | ||||
Republic of France, Inflation Linked Bond, 3.4%, 7/25/2029 | EUR | 331,339 | 550,288 | |||||
Republic of France, Inflation Linked Bond, 3.15%, 7/25/2032 | 192,781 | 338,659 | ||||||
Republic of France, Inflation Linked Bond, 0.1%, 7/25/2036 (z) | 205,856 | 262,405 | ||||||
Republic of France, Inflation Linked Bond, 0.1%, 7/25/2047 | 534,753 | 694,939 | ||||||
Republic of Italy, Inflation Linked Bond, 2.55%, 9/15/2041 | 1,876,034 | 2,377,920 | ||||||
Republic of Portugal, 4.1%, 4/15/2037 | 1,650,000 | 2,809,798 | ||||||
Republic of Portugal, 4.1%, 2/15/2045 | 850,000 | 1,533,308 | ||||||
United Kingdom Treasury, 4.75%, 12/07/2030 | GBP | 2,521,000 | 4,522,761 | |||||
United Kingdom Treasury, 4.25%, 3/07/2036 | 2,591,000 | 4,768,563 | ||||||
United Kingdom Treasury, 3.25%, 1/22/2044 | 250,000 | 433,801 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.75%, 3/22/2034 | 2,612,347 | 5,037,034 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 2%, 1/26/2035 | 1,719,732 | 3,846,394 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 1.125%, 11/22/2037 | 1,011,764 | 2,234,397 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.625%, 3/22/2040 | 2,053,795 | 4,401,102 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.625%, 11/22/2042 | 1,614,187 | 3,637,005 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2044 | 1,741,636 | 3,625,888 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2046 | 1,375,091 | 2,945,285 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.75%, 11/22/2047 | 1,793,559 | 4,499,996 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.5%, 3/22/2050 | 1,549,046 | 3,861,544 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.25%, 3/22/2052 | 1,363,306 | 3,331,025 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 1.25%, 11/22/2055 | 1,408,012 | 4,580,728 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2056 | 435,212 | 1,112,524 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2058 | 1,216,382 | 3,160,716 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.375%, 3/22/2062 | 1,300,282 | 3,871,390 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 11/22/2065 | 708,230 | 2,116,732 | ||||||
United Kingdom Treasury, Inflation Linked Bond, 0.125%, 3/22/2068 | 1,223,441 | 3,860,717 | ||||||
|
| |||||||
$ | 122,833,333 | |||||||
|
|
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Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Mortgage-Backed – 0.0% | ||||||||
Freddie Mac, 3.5%, 5/25/2029 | $ | 80,000 | $ | 83,760 | ||||
|
| |||||||
Restaurants – 0.3% | ||||||||
Starbucks Corp., 3.8%, 8/15/2025 | $ | 658,000 | $ | 702,241 | ||||
|
| |||||||
U.S. Treasury Inflation Protected Securities – 45.6% |
| |||||||
U.S. Treasury Bonds, 0.375%, 7/15/2023 | $ | 1,733,900 | $ | 1,747,869 | ||||
U.S. Treasury Bonds, 0.625%, 1/15/2024 | 3,539,751 | 3,601,381 | ||||||
U.S. Treasury Bonds, 0.25%, 1/15/2025 | 5,326,677 | 5,332,513 | ||||||
U.S. Treasury Bonds, 2.375%, 1/15/2025 | 3,623,840 | 4,049,113 | ||||||
U.S. Treasury Bonds, 0.625%, 1/15/2026 | 2,043,431 | 2,092,494 | ||||||
U.S. Treasury Bonds, 2%, 1/15/2026 | 2,998,681 | 3,336,265 | ||||||
U.S. Treasury Bonds, 0.375%, 1/15/2027 | 9,102,258 | 9,164,417 | ||||||
U.S. Treasury Bonds, 2.375%, 1/15/2027 | 7,670,301 | 8,859,381 | ||||||
U.S. Treasury Bonds, 1.75%, 1/15/2028 | 6,523,597 | 7,312,319 | ||||||
U.S. Treasury Bonds, 3.625%, 4/15/2028 | 7,688,231 | 9,867,294 | ||||||
U.S. Treasury Bonds, 2.5%, 1/15/2029 | 2,435,272 | 2,929,404 | ||||||
U.S. Treasury Bonds, 3.875%, 4/15/2029 | 3,954,623 | 5,293,050 | ||||||
U.S. Treasury Bonds, 3.375%, 4/15/2032 | 349,849 | 479,185 | ||||||
U.S. Treasury Bonds, 2.125%, 2/15/2040 | 3,561,178 | 4,556,390 | ||||||
U.S. Treasury Bonds, 2.125%, 2/15/2041 | 1,805,241 | 2,325,277 | ||||||
U.S. Treasury Bonds, 0.75%, 2/15/2042 | 7,969,734 | 7,999,230 | ||||||
U.S. Treasury Bonds, 0.625%, 2/15/2043 | 2,984,404 | 2,893,091 | ||||||
U.S. Treasury Bonds, 1.375%, 2/15/2044 | 2,396,927 | 2,720,024 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
U.S. Treasury Inflation Protected Securities – continued |
| |||||||
U.S. Treasury Bonds, 0.75%, 2/15/2045 | $ | 439,510 | $ | 434,750 | ||||
U.S. Treasury Notes, 0.125%, 4/15/2021 | 982,267 | 973,136 | ||||||
U.S. Treasury Notes, 0.625%, 7/15/2021 | 2,713,255 | 2,729,966 | ||||||
U.S. Treasury Notes, 0.125%, 1/15/2022 | 5,132,752 | 5,100,485 | ||||||
U.S. Treasury Notes, 0.125%, 7/15/2022 | 2,076,945 | 2,070,664 | ||||||
U.S. Treasury Notes, 0.125%, 1/15/2023 | 4,996,433 | 4,968,147 | ||||||
U.S. Treasury Notes, 0.125%, 7/15/2024 | 4,117,694 | 4,110,509 | ||||||
U.S. Treasury Notes, 0.375%, 7/15/2025 | 3,758,704 | 3,799,733 | ||||||
U.S. Treasury Notes, 0.125%, 7/15/2026 | 4,027,764 | 4,000,248 | ||||||
U.S. Treasury Notes, 0.375%, 7/15/2027 | 3,134,040 | 3,162,934 | ||||||
U.S. Treasury Notes, 0.5%, 1/15/2028 | 5,584,094 | 5,674,913 | ||||||
|
| |||||||
$ | 121,584,182 | |||||||
|
| |||||||
Total Bonds (Identified Cost, $231,833,946) | $ | 251,381,381 | ||||||
|
| |||||||
INVESTMENT COMPANIES (h) – 4.6% |
| |||||||
Money Market Funds – 4.6% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $12,199,711) | 12,199,732 | $ | 12,200,952 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – 1.2% | 3,146,904 | |||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 266,729,237 | ||||||
|
|
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $12,200,952 and $251,381,381, respectively. |
(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 $4,495,576, representing 1.7% of net assets. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
(z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
Restricted Securities | Acquisition Date | Cost | Value | |||||||
Kingdom of Spain, Inflation Linked Bond, 0.7%, 11/30/2033 | 3/7/19-6/10/19 | $4,803,706 | $5,108,473 | |||||||
Republic of France, Inflation Linked Bond, 0.1%, 7/25/2036 | 6/25/18 | 261,064 | 262,405 | |||||||
Total Restricted Securities | $5,370,878 | |||||||||
% of Net assets | 2.0% |
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Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments (unaudited) – continued
The following abbreviations are used in this report and are defined:
CLO | Collateralized Loan Obligation |
FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). Theperiod-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
LIBOR | London Interbank Offered Rate |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
AUD | Australian Dollar |
CAD | Canadian Dollar |
DKK | Danish Krone |
EUR | Euro |
GBP | British Pound |
JPY | Japanese Yen |
NOK | Norwegian Krone |
NZD | New Zealand Dollar |
SEK | Swedish Krona |
Derivative Contracts at 6/30/19
Forward Foreign Currency Exchange Contracts
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||||
Asset Derivatives | ||||||||||||||||||||||
CAD | 3,724,000 | USD | 2,770,509 | Brown Brothers Harriman | 7/12/2019 | $73,914 | ||||||||||||||||
CAD | 1,821,129 | USD | 1,374,075 | Merrill Lynch International | 7/12/2019 | 16,919 | ||||||||||||||||
CAD | 4,813,048 | USD | 3,624,983 | Morgan Stanley Capital Services, Inc. | 7/12/2019 | 51,264 | ||||||||||||||||
CAD | 1,783,000 | USD | 1,329,859 | UBS AG | 7/12/2019 | 32,012 | ||||||||||||||||
DKK | 4,148,185 | USD | 632,102 | Citibank N.A. | 7/12/2019 | 404 | ||||||||||||||||
EUR | 6,508,851 | USD | 7,392,392 | Barclays Bank PLC | 7/12/2019 | 15,069 | ||||||||||||||||
EUR | 2,252,073 | USD | 2,538,822 | Brown Brothers Harriman | 7/12/2019 | 24,170 | ||||||||||||||||
EUR | 1,145,000 | USD | 1,291,845 | Citibank N.A. | 7/12/2019 | 11,234 | ||||||||||||||||
EUR | 7,732,186 | USD | 8,745,695 | Deutsche Bank AG | 7/12/2019 | 53,994 | ||||||||||||||||
EUR | 4,789,543 | USD | 5,432,801 | Goldman Sachs International | 7/12/2019 | 17,985 | ||||||||||||||||
EUR | 597,124 | USD | 673,980 | HSBC Bank | 7/12/2019 | 5,583 | ||||||||||||||||
EUR | 1,192,000 | USD | 1,354,594 | Merrill Lynch International | 7/12/2019 | 1,974 | ||||||||||||||||
EUR | 1,515,004 | USD | 1,724,015 | State Street Bank Corp. | 7/12/2019 | 150 | ||||||||||||||||
EUR | 2,193,092 | USD | 2,482,137 | UBS AG | 7/12/2019 | 13,732 | ||||||||||||||||
GBP | 1,017,206 | USD | 1,289,375 | NatWest Markets PLC | 7/12/2019 | 3,086 | ||||||||||||||||
JPY | 289,189,000 | USD | 2,659,552 | JPMorgan Chase Bank N.A. | 7/12/2019 | 24,875 | ||||||||||||||||
JPY | 468,935,014 | USD | 4,267,280 | State Street Bank Corp. | 7/12/2019 | 85,657 | ||||||||||||||||
NZD | 1,984,000 | USD | 1,318,441 | Citibank N.A. | 7/12/2019 | 14,720 | ||||||||||||||||
NZD | 3,933,000 | USD | 2,606,191 | Morgan Stanley Capital Services, Inc. | 7/12/2019 | 36,614 | ||||||||||||||||
NZD | 1,353,585 | USD | 895,851 | State Street Bank Corp. | 7/12/2019 | 13,699 | ||||||||||||||||
USD | 1,310,592 | AUD | 1,859,000 | JPMorgan Chase Bank N.A. | 7/10/2019 | 5,119 | ||||||||||||||||
USD | 9,541,226 | AUD | 13,323,345 | JPMorgan Chase Bank N.A. | 7/12/2019 | 184,308 | ||||||||||||||||
USD | 911,557 | AUD | 1,289,736 | State Street Bank Corp. | 7/12/2019 | 5,781 | ||||||||||||||||
USD | 553,005 | GBP | 422,890 | Citibank N.A. | 7/12/2019 | 15,681 | ||||||||||||||||
USD | 662,669 | GBP | 510,000 | HSBC Bank | 7/12/2019 | 14,664 | ||||||||||||||||
USD | 618,204 | GBP | 486,000 | NatWest Markets PLC | 7/12/2019 | 693 | ||||||||||||||||
USD | 1,326,304 | GBP | 1,025,000 | State Street Bank Corp. | 7/12/2019 | 23,940 | ||||||||||||||||
USD | 9,362,244 | NZD | 13,852,950 | State Street Bank Corp. | 7/12/2019 | 53,666 | ||||||||||||||||
|
| |||||||||||||||||||||
$800,907 | ||||||||||||||||||||||
|
| |||||||||||||||||||||
Liability Derivatives |
| |||||||||||||||||||||
AUD | 3,768,000 | USD | 2,706,072 | Citibank N.A. | 7/12/2019 | $(59,825 | ) | |||||||||||||||
AUD | 3,605,175 | USD | 2,590,415 | Deutsche Bank AG | 7/12/2019 | (58,519 | ) | |||||||||||||||
AUD | 1,877,000 | USD | 1,348,240 | NatWest Markets PLC | 7/12/2019 | (30,032 | ) | |||||||||||||||
AUD | 1,443,000 | USD | 1,037,305 | UBS AG | 7/12/2019 | (23,893 | ) | |||||||||||||||
EUR | 1,355,234 | USD | 1,542,775 | Goldman Sachs International | 7/12/2019 | (438 | ) |
7
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MFS Inflation-Adjusted Bond Portfolio
Portfolio of Investments (unaudited) – continued
Forward Foreign Currency Exchange Contracts - continued
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||||
Liability Derivatives – continued | ||||||||||||||||||||
GBP | 9,690,657 | USD | 12,729,276 | Barclays Bank PLC | 7/12/2019 | $(416,336 | ) | |||||||||||||
NOK | 11,411,000 | USD | 1,347,929 | Merrill Lynch International | 7/12/2019 | (9,800 | ) | |||||||||||||
NOK | 33,864,000 | USD | 3,984,308 | State Street Bank Corp. | 7/12/2019 | (13,192 | ) | |||||||||||||
SEK | 32,492,693 | USD | 3,541,334 | JPMorgan Chase Bank N.A. | 7/12/2019 | (39,610 | ) | |||||||||||||
USD | 1,332,861 | AUD | 1,924,000 | Brown Brothers Harriman | 7/12/2019 | (18,355 | ) | |||||||||||||
USD | 5,509,302 | AUD | 7,938,000 | State Street Bank Corp. | 7/12/2019 | (65,515 | ) | |||||||||||||
USD | 8,268,874 | CAD | 10,991,649 | Deutsche Bank AG | 7/12/2019 | (126,640 | ) | |||||||||||||
USD | 1,321,131 | CAD | 1,773,000 | JPMorgan Chase Bank N.A. | 7/12/2019 | (33,102 | ) | |||||||||||||
USD | 2,905,752 | EUR | 2,590,000 | Credit Suisse Group | 7/12/2019 | (41,823 | ) | |||||||||||||
USD | 1,199,074 | EUR | 1,053,706 | JPMorgan Chase Bank N.A. | 7/12/2019 | (105 | ) | |||||||||||||
USD | 1,560,353 | EUR | 1,387,403 | Merrill Lynch International | 7/12/2019 | (18,595 | ) | |||||||||||||
USD | 1,209,789 | EUR | 1,074,716 | Morgan Stanley Capital Services, Inc. | 7/12/2019 | (13,303 | ) | |||||||||||||
USD | 1,606,500 | EUR | 1,429,051 | NatWest Markets PLC | 7/12/2019 | (19,845 | ) | |||||||||||||
USD | 2,011,590 | EUR | 1,790,060 | State Street Bank Corp. | 7/12/2019 | (25,605 | ) | |||||||||||||
USD | 2,670,260 | NOK | 23,350,000 | Citibank N.A. | 7/12/2019 | (67,915 | ) | |||||||||||||
USD | 80,039 | NZD | 121,000 | Deutsche Bank AG | 7/12/2019 | (1,268 | ) | |||||||||||||
USD | 1,326,849 | NZD | 2,040,000 | Goldman Sachs International | 7/12/2019 | (43,942 | ) | |||||||||||||
USD | 1,320,909 | NZD | 2,003,752 | State Street Bank Corp. | 7/12/2019 | (25,525 | ) | |||||||||||||
USD | 2,646,448 | SEK | 24,675,000 | Citibank N.A. | 7/12/2019 | (12,766 | ) | |||||||||||||
USD | 1,315,741 | SEK | 12,476,000 | Deutsche Bank AG | 7/12/2019 | (28,792 | ) | |||||||||||||
|
| |||||||||||||||||||
$(1,194,741 | ) | |||||||||||||||||||
|
|
At June 30, 2019, the fund had liquid securities with an aggregate value of $270,315 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
8
Table of Contents
MFS Inflation-Adjusted Bond 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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value (identified cost, $231,833,946) | $251,381,381 | |||
Investments in affiliated issuers, at value (identified cost, $12,199,711) | 12,200,952 | |||
Cash | 6 | |||
Receivables for | ||||
Forward foreign currency exchange contracts | 800,907 | |||
Investments sold | 3,172,088 | |||
Interest | 843,144 | |||
Other assets | 1,068 | |||
Total assets | $268,399,546 | |||
Liabilities | ||||
Payables for | ||||
Forward foreign currency exchange contracts | $1,194,741 | |||
Investments purchased | 295,921 | |||
Fund shares reacquired | 90,731 | |||
Payable to affiliates | ||||
Investment adviser | 14,357 | |||
Administrative services fee | 508 | |||
Shareholder servicing costs | 23 | |||
Distribution and/or service fees | 3,604 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 70,324 | |||
Total liabilities | $1,670,309 | |||
Net assets | $266,729,237 | |||
Net assets consist of | ||||
Paid-in capital | $243,222,279 | |||
Total distributable earnings (loss) | 23,506,958 | |||
Net assets | $266,729,237 | |||
Shares of beneficial interest outstanding | 24,789,875 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $135,360,330 | 12,499,374 | $10.83 | |||||||||
Service Class | 131,368,907 | 12,290,501 | 10.69 |
See Notes to Financial Statements
9
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MFS Inflation-Adjusted Bond 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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Interest | $2,422,772 | |||
Dividends from affiliated issuers | 109,162 | |||
Other | 60 | |||
Total investment income | $2,531,994 | |||
Expenses | ||||
Management fee | $659,019 | |||
Distribution and/or service fees | 162,941 | |||
Shareholder servicing costs | 1,894 | |||
Administrative services fee | 23,698 | |||
Independent Trustees’ compensation | 5,890 | |||
Custodian fee | 13,719 | |||
Shareholder communications | 9,847 | |||
Audit and tax fees | 21,774 | |||
Legal fees | 1,276 | |||
Miscellaneous | 18,361 | |||
Total expenses | $918,419 | |||
Reduction of expenses by investment adviser | (12,746 | ) | ||
Net expenses | $905,673 | |||
Net investment income (loss) | $1,626,321 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $1,179,039 | |||
Affiliated issuers | (1,113 | ) | ||
Forward foreign currency exchange contracts | (758,164 | ) | ||
Foreign currency | (113,970 | ) | ||
Net realized gain (loss) | $305,792 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $14,801,515 | |||
Affiliated issuers | 1,241 | |||
Forward foreign currency exchange contracts | 305,385 | |||
Translation of assets and liabilities in foreign currencies | 2,933 | |||
Net unrealized gain (loss) | $15,111,074 | |||
Net realized and unrealized gain (loss) | $15,416,866 | |||
Change in net assets from operations | $17,043,187 |
See Notes to Financial Statements
10
Table of Contents
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $1,626,321 | $4,999,098 | ||||||
Net realized gain (loss) | 305,792 | 2,052,579 | ||||||
Net unrealized gain (loss) | 15,111,074 | (21,024,132 | ) | |||||
Change in net assets from operations | $17,043,187 | $(13,972,455 | ) | |||||
Total distributions to shareholders | $— | $(4,685,058 | ) | |||||
Change in net assets from fund share transactions | $(16,590,754 | ) | $(42,912,583 | ) | ||||
Total change in net assets | $452,433 | $(61,570,096 | ) | |||||
Net assets | ||||||||
At beginning of period | 266,276,804 | 327,846,900 | ||||||
At end of period | $266,729,237 | $266,276,804 |
See Notes to Financial Statements
11
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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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.15 | $10.81 | $9.98 | $9.73 | $10.32 | $10.04 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.07 | $0.19 | $0.13 | $0.07 | (c) | $(0.01 | ) | $0.08 | ||||||||||||||||
Net realized and unrealized gain (loss) | 0.61 | (0.67 | ) | 0.70 | 0.18 | (0.51 | ) | 0.29 | ||||||||||||||||
Total from investment operations | $0.68 | $(0.48 | ) | $0.83 | $0.25 | $(0.52 | ) | $0.37 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.18 | ) | $— | $— | $(0.07 | ) | $(0.09 | ) | |||||||||||||||
Net asset value, end of period (x) | $10.83 | $10.15 | $10.81 | $9.98 | $9.73 | $10.32 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.70 | (n) | (4.47 | ) | 8.32 | 2.57 | (c) | (5.04 | ) | 3.71 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.57 | (a) | 0.57 | 0.56 | 0.55 | (c) | 0.56 | 0.55 | ||||||||||||||||
Expenses after expense reductions (f) | 0.56 | (a) | 0.56 | 0.55 | 0.54 | (c) | 0.55 | 0.54 | ||||||||||||||||
Net investment income (loss) | 1.36 | (a) | 1.78 | 1.28 | 0.65 | (c) | (0.11 | ) | 0.72 | |||||||||||||||
Portfolio turnover | 32 | (n) | 63 | 40 | 47 | 44 | 24 | |||||||||||||||||
Net assets at end of period (000 omitted) | $135,360 | $134,599 | $162,429 | $168,857 | $184,691 | $214,183 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.03 | $10.68 | $9.89 | $9.66 | $10.24 | $9.96 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.06 | $0.16 | $0.11 | $0.04 | (c) | $(0.04 | ) | $0.05 | ||||||||||||||||
Net realized and unrealized gain (loss) | 0.60 | (0.66 | ) | 0.68 | 0.19 | (0.50 | ) | 0.29 | ||||||||||||||||
Total from investment operations | $0.66 | $(0.50 | ) | $0.79 | $0.23 | $(0.54 | ) | $0.34 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.15 | ) | $— | $— | $(0.04 | ) | $(0.06 | ) | |||||||||||||||
Net asset value, end of period (x) | $10.69 | $10.03 | $10.68 | $9.89 | $9.66 | $10.24 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 6.58 | (n) | (4.70 | ) | 7.99 | 2.38 | (c) | (5.27 | ) | 3.43 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.82 | (a) | 0.82 | 0.81 | 0.80 | (c) | 0.81 | 0.80 | ||||||||||||||||
Expenses after expense reductions (f) | 0.81 | (a) | 0.81 | 0.80 | 0.79 | (c) | 0.80 | 0.79 | ||||||||||||||||
Net investment income (loss) | 1.10 | (a) | 1.54 | 1.03 | 0.40 | (c) | (0.37 | ) | 0.46 | |||||||||||||||
Portfolio turnover | 32 | (n) | 63 | 40 | 47 | 44 | 24 | |||||||||||||||||
Net assets at end of period (000 omitted) | $131,369 | $131,678 | $165,418 | $169,077 | $176,909 | $217,249 |
See Notes to Financial Statements
12
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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
13
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
NOTES TO FINANCIAL STATEMENTS (unaudited)
(1) | Business and Organization |
MFS Inflation-Adjusted Bond Portfolio (the fund) is anon-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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-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. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. 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.
14
Table of Contents
MFS Inflation-Adjusted Bond Portfolio
Notes to Financial Statements (unaudited) – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as forward foreign currency exchange contracts. The following is a summary of the levels used as of June 30, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. Treasury Bonds & U.S. Government | ||||||||||||||||
Agency & Equivalents | $— | $121,584,182 | $— | $121,584,182 | ||||||||||||
Non-U.S. Sovereign Debt | — | 124,427,193 | — | 124,427,193 | ||||||||||||
U.S. Corporate Bonds | — | 790,670 | — | 790,670 | ||||||||||||
Residential Mortgage-Backed Securities | — | 83,760 | — | 83,760 | ||||||||||||
Asset-Backed Securities (including CDOs) | — | 4,495,576 | — | 4,495,576 | ||||||||||||
Mutual Funds | 12,200,952 | — | — | 12,200,952 | ||||||||||||
Total | $12,200,952 | $251,381,381 | $— | $263,582,333 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Forward Foreign Currency Exchange Contracts – Assets | $— | $800,907 | $— | $800,907 | ||||||||||||
Forward Foreign Currency Exchange Contracts – Liabilities | — | (1,194,741 | ) | — | (1,194,741 | ) |
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 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 ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at June 30, 2019 as reported in the Statement of Assets and Liabilities:
Fair Value | ||||||||||
Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives | |||||||
Foreign Exchange | Forward Foreign Currency Exchange Contracts | $800,907 | $(1,194,741 | ) |
15
Table of Contents
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, 2019 as reported in the Statement of Operations:
Risk | Forward Foreign Currency Exchange Contracts | |||
Foreign Exchange | $(758,164 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2019 as reported in the Statement of Operations:
Risk | Forward Foreign Currency Exchange Contracts | |||
Foreign Exchange | $305,385 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
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 fornon-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. Fornon-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
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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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward based on the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Interest payments received in additional securities are recorded on theex-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 theex-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 and derivative transactions.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $4,685,058 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $244,800,466 | |||
Gross appreciation | 19,205,205 | |||
Gross depreciation | (423,338 | ) | ||
Net unrealized appreciation (depreciation) | $18,781,867 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 4,024,081 | |||
Capital loss carryforwards | (1,543,720 | ) | ||
Other temporary differences | (3,554 | ) | ||
Net unrealized appreciation (depreciation) | 3,986,964 |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2018, 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 | $(1,543,720 | ) |
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MFS Inflation-Adjusted Bond Portfolio
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 | ||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | |||||||
Initial Class | $— | $2,528,387 | ||||||
Service Class | — | 2,156,671 | ||||||
Total | $— | $4,685,058 |
(3) | Transactions with Affiliates |
Investment Adviser– The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.50% of the fund’s average daily net assets.
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2019, this management fee reduction amounted to $12,746, 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, 2019 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 Rule12b-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, 2019, the fee was $1,831, which equated to 0.0014% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $63.
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, 2019 was equivalent to an annual effective rate of 0.0180% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $316 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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, 2019, purchases and sales of investments, other than short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $34,242,285 | $34,234,020 | ||||||
Non-U.S. Government securities | $48,135,273 | $77,313,815 |
(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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 37,287 | $386,805 | 65,473 | $692,556 | ||||||||||||
Service Class | 446,971 | 4,663,972 | 856,820 | 8,882,666 | ||||||||||||
484,258 | $5,050,777 | 922,293 | $9,575,222 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 244,999 | $2,528,387 | ||||||||||||
Service Class | — | — | 211,231 | 2,156,671 | ||||||||||||
— | $— | 456,230 | $4,685,058 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (796,393 | ) | $(8,365,446 | ) | (2,077,892 | ) | $(21,819,363 | ) | ||||||||
Service Class | (1,282,042 | ) | (13,276,085 | ) | (3,429,568 | ) | (35,353,500 | ) | ||||||||
(2,078,435 | ) | $(21,641,531 | ) | (5,507,460 | ) | $(57,172,863 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (759,106 | ) | $(7,978,641 | ) | (1,767,420 | ) | $(18,598,420 | ) | ||||||||
Service Class | (835,071 | ) | (8,612,113 | ) | (2,361,517 | ) | (24,314,163 | ) | ||||||||
(1,594,177 | ) | $(16,590,754 | ) | (4,128,937 | ) | $(42,912,583 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 27%, 17%, and 7%, respectively, of the value of outstanding voting shares of the fund.
(6) | Line of Credit |
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $869 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $950,035 | $62,809,375 | $51,558,586 | $(1,113 | ) | $1,241 | $12,200,952 | |||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | $109,162 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov.A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/vit3 by choosing 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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Table of Contents
Semiannual Report
June 30, 2019
MFS® Limited Maturity Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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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MFS Limited Maturity Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 | 49.3% | |||
U.S. Treasury Securities | 18.9% | |||
Asset-Backed Securities | 11.7% | |||
Collateralized Debt Obligations | 9.7% | |||
Commercial Mortgage-Backed Securities | 8.9% | |||
Emerging Markets Bonds | 2.7% | |||
Non-U.S. Government Bonds | 1.7% | |||
Residential Mortgage-Backed Securities | 1.6% | |||
Municipal Bonds | 0.8% | |||
Mortgage-Backed Securities | 0.8% | |||
U.S. Government Agencies | 0.4% |
Composition including fixed income credit quality (a)(i) |
| |||
AAA | 11.0% | |||
AA | 15.4% | |||
A | 23.9% | |||
BBB | 31.5% | |||
U.S. Government | 12.0% | |||
Federal Agencies | 1.1% | |||
Not Rated | 11.6% | |||
Cash & Cash Equivalents | 0.4% | |||
Other | (6.9)% | |||
Portfolio facts (i) | ||||
Average Duration (d) | 1.8 | |||
Average Effective Maturity (m) | 2.6 yrs. |
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives, 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 a5-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 each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put,pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
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Portfolio Composition – continued
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of June 30, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.45% | $1,000.00 | $1,035.64 | $2.27 | |||||||||||||
Hypothetical (h) | 0.45% | $1,000.00 | $1,022.56 | $2.26 | ||||||||||||||
Service Class | Actual | 0.70% | $1,000.00 | $1,034.69 | $3.53 | |||||||||||||
Hypothetical (h) | 0.70% | $1,000.00 | $1,021.32 | $3.51 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
BONDS – 98.9% | ||||||||
Asset-Backed & Securitized – 31.8% | ||||||||
ALM Loan Funding CLO,2015-12A, “A2A2”, FLR, 3.951% (LIBOR - 3mo. + 1.35%), 4/16/2027 (n) | $ | 3,511,841 | $ | 3,459,450 | ||||
ALM Loan Funding CLO,2015-16A, “BR2”, FLR, 4.496% (LIBOR - 3mo. + 1.9%), 7/15/2027 (n) | 1,900,315 | 1,896,484 | ||||||
Americredit Automobile Receivables Trust,2017-2, “C”, 2.97%, 3/20/2023 | 1,837,000 | 1,854,414 | ||||||
Arbor Realty CLO Ltd.,2019-FL1, “A”, FLR, 3.543% (LIBOR - 1mo. + 1.15%), 5/15/2037 (n) | 2,210,000 | 2,215,510 | ||||||
Avery Point CLO Ltd.,2014-1A, “CR”, FLR, 4.93% (LIBOR - 3mo. + 2.35%), 4/25/2026 (n) | 1,720,000 | 1,721,209 | ||||||
Avis Budget Rental Car Funding LLC,2019-1A, “A”, 3.45%, 3/20/2023 (n) | 2,900,000 | 2,970,122 | ||||||
Ballyrock Ltd., CLO,2018-1A, “A2”, FLR, 4.191% (LIBOR - 3mo. + 1.6%), 4/20/2031 (n) | 1,748,737 | 1,690,467 | ||||||
Ballyrock Ltd., CLO,2018-1A, “B”, FLR, 4.491% (LIBOR - 3mo. + 1.9%), 4/20/2031 (n) | 741,069 | 716,195 | ||||||
Bancorp Commercial Mortgage Trust,2018-CR3, “B”, FLR, 3.944% (LIBOR - 1mo. + 1.55%), 1/15/2033 (n) | 1,605,087 | 1,606,825 | ||||||
Bancorp Commercial Mortgage Trust, 2018-CRE4, “AS”, FLR, 3.494% (LIBOR -1mo. + 1.1%), 9/15/2035 (n) | 1,736,000 | 1,726,238 | ||||||
Bancorp Commercial Mortgage Trust, 2019-CRE5, “AS”, FLR, 3.744% (LIBOR -1mo. + 1.35%), 3/15/2036 (n) | 1,247,481 | 1,249,040 | ||||||
Bancorp Commercial Mortgage Trust, 2019-CRE5, “B”, FLR, 3.894% (LIBOR -1mo. + 1.5%), 3/15/2036 (n) | 1,727,281 | 1,727,281 | ||||||
Barclays Commercial Mortgage Securities LLC,2018-C2, “XA”, 0.938%, 12/15/2051 (i)(z) | 22,173,335 | 1,348,010 | ||||||
BSPRT Ltd.,2018-FL4, FLR, 4.494% (LIBOR - 1mo. + 2.1%), 9/15/2035 (n) | 2,076,000 | 2,081,212 | ||||||
Business Jet Securities LLC,2018-1, “A”, 4.335%, 2/15/2033 (n) | 1,920,742 | 1,941,331 | ||||||
BXMT Ltd.,2017-FL1 “A”, FLR, 3.264% (LIBOR - 1mo. + 0.87%), 6/15/2035 (n) | 1,525,500 | 1,526,427 | ||||||
Caravana Auto Receivables Trust,2019-1A, “B”, 3.29%, 8/15/2023 (n) | 2,927,000 | 2,975,451 | ||||||
CD Commercial Mortgage Trust,2017-CD4, “XA”, 1.469%, 5/10/2050 (i) | 17,555,301 | 1,318,279 | ||||||
Chesapeake Funding II LLC,2016-1A, “A2”, FLR, 3.544% (LIBOR - 1mo. + 1.15%), 3/15/2028 (n) | 119,610 | 119,699 | ||||||
Chesapeake Funding II LLC,2017-2A, “B”, 2.81%, 5/15/2029 (n) | 1,200,000 | 1,206,432 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued |
| |||||||
Chesapeake Funding II LLC,2017-2A, “C”, 3.01%, 5/15/2029 (n) | $ | 536,000 | $ | 538,694 | ||||
Chesapeake Funding II LLC,2017-3A, “B”, 2.57%, 8/15/2029 (n) | 869,000 | 871,298 | ||||||
Chesapeake Funding II LLC,2017-4A, “B”, 2.59%, 11/15/2029 (n) | 741,000 | 741,476 | ||||||
Chesapeake Funding II LLC,2017-4A, “C”, 2.76%, 11/15/2029 (n) | 994,000 | 994,735 | ||||||
CPS Auto Trust,2016-D, “B”, 2.11%, 3/15/2021 (n) | 479,063 | 478,823 | ||||||
CPS Auto Trust,2017-C, “C”, 2.86%, 6/15/2023 (n) | 1,340,000 | 1,341,638 | ||||||
Credit Acceptance Auto Loan Trust,2016-3A, “A”, 2.15%, 4/15/2024 (n) | 428,298 | 428,038 | ||||||
Credit Acceptance Auto Loan Trust,2017-2A, “B”, 3.02%, 4/15/2026 (n) | 2,607,000 | 2,620,204 | ||||||
Cutwater CLO Ltd.,2015-1A, “AR”, FLR, 3.816% (LIBOR - 3mo. + 1.22%), 1/15/2029 (n) | 2,579,418 | 2,579,490 | ||||||
Dell Equipment Finance Trust,2017-2, “B”, 2.47%, 10/24/2022 (n) | 692,000 | 690,597 | ||||||
Dell Equipment Finance Trust,2018-2, “B”, 3.55%, 10/22/2023 (n) | 1,843,000 | 1,886,611 | ||||||
DLL Securitization Trust,2017-A, “A3”, 2.14%, 12/15/2021 (n) | 868,000 | 866,260 | ||||||
DT Auto Owner Trust,2017-1A, “D”, 3.55%, 11/15/2022 (n) | 1,032,000 | 1,038,211 | ||||||
DT Auto Owner Trust,2017-2A, “C”, 3.03%, 1/17/2023 (n) | 990,611 | 991,068 | ||||||
DT Auto Owner Trust,2017-3A, “C”, 3.01%, 5/15/2023 (n) | 1,333,133 | 1,334,091 | ||||||
DT Auto Owner Trust,2018-2A, “C”, 3.67%, 3/15/2024 (n) | 803,000 | 815,402 | ||||||
Enterprise Fleet Financing LLC, 1.74%, 2/22/2022 (n) | 95,276 | 95,176 | ||||||
Exantas Capital Corp. CLO Ltd., 2019-RS07, “B”, FLR, 4.094% (LIBOR - 1mo. + 1.7%), 4/15/2036 (n) | 1,927,000 | 1,930,051 | ||||||
Exeter Automobile Receivables Trust,2018-1A, “B”, 2.75%, 4/15/2022 (n) | 1,852,978 | 1,854,078 | ||||||
Exeter Automobile Receivables Trust,2018-2A, “C”, 3.69%, 3/15/2023 (n) | 2,340,000 | 2,371,055 | ||||||
Figueroa CLO Ltd.,2014-1A, “BR”, FLR, 3.803% (LIBOR - 3mo. + 1.5%), 1/15/2027 (n) | 2,520,000 | 2,512,563 | ||||||
Fort CRE LLC,2018-1A, “A1”, FLR, 3.754% (LIBOR - 1mo. + 1.35%), 11/21/2035 (n) | 2,596,500 | 2,596,495 | ||||||
Freedom Financial,2019-1, “A”, 3.42%, 6/18/2026 (n) | 721,047 | 721,622 | ||||||
General Motors,2019-1, “B”, 2.86%, 4/15/2024 (n) | 1,228,000 | 1,244,043 | ||||||
General Motors,2019-1, “C”, 3.06%, 4/15/2024 (n) | 945,000 | 957,455 |
5
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued |
| |||||||
Grand Avenue CRE Ltd.,2019-FL1, “A”, 3.445%, 6/15/2037 (n) | $ | 1,512,500 | $ | 1,515,336 | ||||
Granite Point Mortgage Trust, Inc., FLR, 3.283% (LIBOR - 1mo. + 0.9%), 11/21/2035 (n) | 1,741,801 | 1,741,801 | ||||||
GS Mortgage Securities Trust,2017-GS6, “XA”, 1.191%, 5/10/2050 (i) | 15,816,836 | 1,101,649 | ||||||
GS Mortgage Securities Trust,2017-GS7, “XA”, 1.28%, 8/10/2050 (i) | 15,781,503 | 1,132,596 | ||||||
Hertz Fleet Lease Funding LP,2016-1, “A2”, 1.96%, 4/10/2030 (n) | 232,836 | 232,699 | ||||||
Hertz Fleet Lease Funding LP,2018-1, “B”, 3.64%, 5/10/2032 (n) | 1,106,000 | 1,119,864 | ||||||
Hertz Fleet Lease Funding LP,2018-1, “C”, 3.77%, 5/10/2032 (n) | 635,000 | 642,808 | ||||||
Invitation Homes Trust, 2018-SFR1, “B”, FLR, 3.344% (LIBOR - 1mo. + 0.95%), 3/17/2037 (n) | 1,366,000 | 1,350,033 | ||||||
Invitation Homes Trust, 2018-SFR2, “A”, FLR, 3.244% (LIBOR - 1mo. + 0.85%), 12/17/2036 (n) | 2,677,961 | 2,660,104 | ||||||
JPMorgan Chase Commercial Mortgage Securities Corp., 1.225%, 9/15/2050 (i) | 15,104,958 | 963,307 | ||||||
KKR Real Estate Financial Trust, Inc.,2018-FL1, “C”, FLR, 4.394% (LIBOR - 1mo. + 2%), 6/15/2036 (n) | 1,355,500 | 1,358,889 | ||||||
LoanCore Ltd., 2018-CRE1, “AS”, FLR, 3.894% (LIBOR - 1mo. + 1.5%), 5/15/2028 (n) | 2,225,000 | 2,230,562 | ||||||
LoanCore Ltd., 2018-CRE1, “C”, FLR, 4.944% (LIBOR - 1mo. + 2.55%), 5/15/2028 (n) | 741,500 | 745,681 | ||||||
LoanCore Ltd., 2019-CRE3, “AS”, FLR, 3.764% (LIBOR - 1mo. + 1.37%), 4/15/2034 (n) | 2,200,500 | 2,203,268 | ||||||
Loomis, Sayles & Co., CLO, “A2”, FLR, 3.996% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n) | 1,854,111 | 1,840,116 | ||||||
Loomis, Sayles & Co., CLO,2015-2A, “A1R”, FLR, 3.496% (LIBOR - 3mo. + 0.9%), 4/15/2028 (n) | 1,646,843 | 1,637,416 | ||||||
Madison Park Funding Ltd.,2014-13A, “BR2”, FLR, 4.091% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | 2,779,008 | 2,752,760 | ||||||
Magnetite CLO Ltd.,2015-16A, “BR”, FLR, 3.8% (LIBOR - 3mo. + 1.2%), 1/18/2028 (n) | 3,559,000 | 3,532,090 | ||||||
Man GLG U.S. CLO2018-2 Ltd.,2018-2A, “BR”, FLR, 5.046% (LIBOR - 3mo. + 2.45%), 10/15/2028 | 2,309,265 | 2,310,477 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust,2017-C33, “XA”, 1.588%, 5/15/2050 (i) | 17,306,264 | 1,273,691 | ||||||
Morgan Stanley Capital I Trust,2017-H1, “XA”, 1.6%, 6/15/2050 (i) | 7,807,756 | 609,367 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued |
| |||||||
Morgan Stanley Capital I Trust,2018-H4, “XA”, 1.036%, 12/15/2051 (i) | $ | 18,085,479 | $ | 1,200,279 | ||||
Mountain Hawk CLO Ltd.,2014-3A, “BR”, FLR, 4.401% (LIBOR - 3mo. + 1.8%), 4/18/2025 (n) | 3,468,000 | 3,464,858 | ||||||
Nationstar HECM Loan Trust,2018-1A, “M1”, 3.238%, 2/25/2028 (n) | 1,392,000 | 1,393,093 | ||||||
Nationstar HECM Loan Trust,2019-1A, “A”, 2.651%, 6/25/2029 (z) | 1,035,000 | 1,034,999 | ||||||
Navistar Financial Dealer Note Master Owner (NAVMT),2019-1, “C”, FLR, 3.363% (LIBOR - 1mo. + 0.95%), 5/28/2024 (n) | 432,000 | 432,108 | ||||||
Navistar Financial Dealer Note Master Owner Trust II,2018-1, “B”, FLR, 3.204% (LIBOR - 1mo. + 0.8%), 9/25/2023 (n) | 347,000 | 347,542 | ||||||
Navistar Financial Dealer Note Master Owner Trust II,2018-1, “C”, FLR, 3.454% (LIBOR - 1mo. + 1.05%), 9/25/2023 (n) | 391,000 | 391,904 | ||||||
Neuberger Berman CLO Ltd.,2016-21A, “CR”, FLR, 4.191% (LIBOR - 3mo. + 1.6%), 4/20/2027 (n) | 2,056,577 | 1,989,164 | ||||||
NextGear Floorplan Master Owner Trust,2017-1A, “A2”, 2.54%, 4/18/2022 (n) | 1,378,000 | 1,378,516 | ||||||
NextGear Floorplan Master Owner Trust,2017-2A, “B”, 3.02%, 10/17/2022 (n) | 1,038,000 | 1,043,916 | ||||||
Oaktree CLO Ltd.,2014-2A, “BR”, FLR, 5.141% (LIBOR - 3mo. + 2.55%), 10/20/2026 (n) | 1,752,000 | 1,748,985 | ||||||
OneMain Financial Issuance Trust,2017-1A, “A1”, 2.37%, 9/14/2032 (n) | 2,089,000 | 2,084,910 | ||||||
Oscar U.S. Funding Trust,2017-1A, “A3”, 2.82%, 6/10/2021 (n) | 1,543,093 | 1,544,511 | ||||||
Oscar U.S. Funding Trust,2017-2A, “A2B”, FLR, 3.061% (LIBOR - 1mo. + 0.65%), 11/10/2020 (n) | 242,224 | 242,270 | ||||||
PFS Financing Corp.,2017-C, “A”, FLR, 2.864% (LIBOR - 1mo. + 0.47%), 10/15/2021 (n) | 908,000 | 907,792 | ||||||
Santander Drive Auto Receivable Trust,2019-2, “B”, 2.79%, 1/16/2024 | 1,474,000 | 1,485,868 | ||||||
Santander Drive Auto Receivables Trust,2017-2, “C”, 2.79%, 8/15/2022 | 1,109,000 | 1,110,569 | ||||||
Santander Drive Auto Receivables Trust,2018-1, “B”, 2.63%, 7/15/2022 | 1,790,000 | 1,792,665 | ||||||
Santander Retail Auto Lease Trust,2017-A, “B”, 2.68%, 1/20/2022 (n) | 1,288,000 | 1,288,553 | ||||||
Shackelton CLO Ltd.,2013-4RA, “B”, FLR, 4.496% (LIBOR - 3mo. + 1.9%), 4/13/2031 (n) | 927,055 | 900,571 | ||||||
Shackleton CLO Ltd.,2015-8A, “CR”, FLR, 4.241% (LIBOR - 3mo. + 1.65%), 10/20/2027 (n) | 709,957 | 698,065 | ||||||
Shelter Growth CRE,2018-FL1, “A”, FLR, 3.394% (LIBOR - 1mo. + 1%), 1/15/2035 (n) | 461,649 | 462,073 |
6
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Asset-Backed & Securitized – continued |
| |||||||
Shelter Growth CRE,2019-FL2, “A”, FLR, 3.494% (LIBOR - 1mo. + 1.1%), 5/15/2036 (n) | $ | 2,828,500 | $ | 2,825,199 | ||||
Sierra Receivables Funding Co. LLC,2015-1A, “A”, 2.4%, 3/22/2032 (n) | 325,447 | 324,769 | ||||||
Starwood Waypoint Homes Trust,2017-1, “B”, FLR, 3.564% (LIBOR - 1mo. + 1.17%), 1/17/2035 (n) | 2,055,201 | 2,053,097 | ||||||
Student Loan Consolidation Center, “A”, FLR, 3.624% (LIBOR - 1mo. + 1.22%), 10/25/2027 (n) | 375,405 | 377,077 | ||||||
Thacher Park CLO Ltd.,2014-1A, “CR”, FLR, 4.791% (LIBOR - 3mo. + 2.2%), 10/20/2026 (n) | 1,743,000 | 1,742,937 | ||||||
TICP Ltd., CLO,2018-3R, “B”, FLR, 3.941% (LIBOR - 3mo. + 1.35%), 4/20/2028 (n) | 870,756 | 865,041 | ||||||
TICP Ltd., CLO,2018-3R, “C”, FLR, 4.391% (LIBOR - 3mo. + 1.8%), 4/20/2028 (n) | 1,528,084 | 1,488,516 | ||||||
TPG Real Estate Finance,2018-FL2, “AS”, FLR, 3.844% (LIBOR - 1mo. + 1.45%), 11/15/2037 (n) | 2,192,500 | 2,195,268 | ||||||
Tricon American Homes Trust, 2015-SFR1, “1A”, 2.589%, 11/17/2033 (n) | 1,680,153 | 1,678,323 | ||||||
UBS Commercial Mortgage Trust,2017-C1, “XA”, 1.161%, 11/15/2050 (i) | 12,026,170 | 735,190 | ||||||
UBS Commercial Mortgage Trust,2018-C14, “XA”, 1.182%, 12/15/2051 (i) | 9,139,904 | 693,307 | ||||||
Verizon Owner Trust,2017-3A, “B”, 2.38%, 4/20/2022 (n) | 1,230,000 | 1,232,353 | ||||||
Veros Auto Receivables Trust,2017-1, “A”, 2.84%, 4/17/2023 (n) | 116,562 | 116,490 | ||||||
Veros Auto Receivables Trust,2018-1, “A”, 3.63%, 5/15/2023 (n) | 992,752 | 995,981 | ||||||
West CLO Ltd.,2013-1A, “A2BR”, 3.393%, 11/07/2025 (n) | 1,720,000 | 1,717,922 | ||||||
West CLO Ltd.,2014-2A, “A1BR”, 2.724%, 1/16/2027 (z) | 1,658,134 | 1,655,625 | ||||||
Wind River CLO Ltd.,2012-1A, “BR2”, FLR, 3.753% (LIBOR - 3mo. + 1.45%), 1/15/2026 (w)(z) | 2,251,428 | 2,251,428 | ||||||
Wind River CLO Ltd.,2015-2A, “CR”, FLR, 4.296% (LIBOR - 1mo. + 1.7%), 10/15/2027 (n) | 864,053 | 850,970 | ||||||
|
| |||||||
$ | 151,546,468 | |||||||
|
| |||||||
Automotive – 2.2% | ||||||||
BMW US Capital LLC, 3.1%, 4/12/2021 (n) | $ | 2,383,000 | $ | 2,410,881 | ||||
Ford Motor Credit Co. LLC, 5.085%, 1/07/2021 | 1,088,000 | 1,121,128 | ||||||
Harley-Davidson Financial Services, 4.05%, 2/04/2022 (n) | 1,351,000 | 1,395,567 | ||||||
Harley-Davidson Financial Services, FLR, 3.46% (LIBOR - 3mo. + 0.94%), 3/02/2021 (n) | 1,672,000 | 1,669,555 | ||||||
Hyundai Capital America, 3.75%, 7/08/2021 (n) | 976,000 | 995,377 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Automotive – continued | ||||||||
Volkswagen Group of America Co., 3.875%, 11/13/2020 (n) | $ | 1,356,000 | $ | 1,384,813 | ||||
Volkswagen Group of America Co., 4%, 11/12/2021 (n) | 1,356,000 | 1,399,576 | ||||||
|
| |||||||
$ | 10,376,897 | |||||||
|
| |||||||
Broadcasting – 0.5% | ||||||||
Fox Corp., 3.666%, 1/25/2022 (n) | $ | 778,000 | $ | 803,998 | ||||
Interpublic Group of Companies, Inc., 3.5%, 10/01/2020 | 1,734,000 | 1,756,090 | ||||||
|
| |||||||
$ | 2,560,088 | |||||||
|
| |||||||
Brokerage & Asset Managers – 1.0% |
| |||||||
E*TRADE Financial Corp., 2.95%, 8/24/2022 | $ | 2,018,000 | $ | 2,037,945 | ||||
Intercontinental Exchange, Inc., 2.75%, 12/01/2020 | 2,516,000 | 2,532,284 | ||||||
|
| |||||||
$ | 4,570,229 | |||||||
|
| |||||||
Cable TV – 1.1% | ||||||||
Comcast Corp., 3.45%, 10/01/2021 | $ | 1,718,000 | $ | 1,767,682 | ||||
NBCUniversal Media LLC, 4.375%, 4/01/2021 | 1,087,000 | 1,127,236 | ||||||
Time Warner Cable, Inc., 5%, 2/01/2020 | 2,543,000 | 2,576,436 | ||||||
|
| |||||||
$ | 5,471,354 | |||||||
|
| |||||||
Computer Software – 1.0% | ||||||||
Dell Investments LLC/EMC Corp., 4.42%, 6/15/2021 | $ | 3,089,000 | $ | 3,183,031 | ||||
Dell Investments LLC/EMC Corp., 4%, 7/15/2024 (n) | 1,503,000 | 1,542,319 | ||||||
|
| |||||||
$ | 4,725,350 | |||||||
|
| |||||||
Conglomerates – 2.0% | ||||||||
Roper Technologies, Inc., 2.8%, 12/15/2021 | $ | 783,000 | $ | 788,156 | ||||
United Technologies Corp., 3.1%, 6/01/2022 | 956,000 | 978,056 | ||||||
United Technologies Corp., 3.65%, 8/16/2023 | 3,349,000 | 3,507,378 | ||||||
Westinghouse Air Brake Technologies Corp., 4.4%, 3/15/2024 | 3,320,000 | 3,514,936 | ||||||
Westinghouse Air Brake Technologies Corp., FLR, 3.71% (LIBOR - 3mo. + 1.05%), 9/15/2021 | 871,000 | 868,506 | ||||||
|
| |||||||
$ | 9,657,032 | |||||||
|
| |||||||
Consumer Products – 0.2% | ||||||||
Reckitt Benckiser Treasury Services PLC, 2.375%, 6/24/2022 (n) | $ | 750,000 | $ | 749,292 | ||||
|
| |||||||
Consumer Services – 0.7% | ||||||||
Alibaba Group Holding Ltd., 2.8%, 6/06/2023 | $ | 1,223,000 | $ | 1,231,807 | ||||
QVC, Inc., 5.125%, 7/02/2022 | 1,805,000 | 1,879,343 | ||||||
|
| |||||||
$ | 3,111,150 | |||||||
|
|
7
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Electrical Equipment – 0.3% | ||||||||
Molex Electronic Technologies LLC, 2.878%, 4/15/2020 (n) | $ | 1,198,000 | $ | 1,198,583 | ||||
|
| |||||||
Electronics – 1.5% | ||||||||
Broadcom Corp./Broadcom Cayman | ||||||||
Finance Ltd., 3%, 1/15/2022 | $ | 3,799,000 | $ | 3,808,871 | ||||
Broadcom, Inc., 3.125%, 4/15/2021 (n) | 1,665,000 | 1,675,781 | ||||||
Microchip Technology, Inc., 3.922%, 6/01/2021 | 1,607,000 | 1,635,839 | ||||||
|
| |||||||
$ | 7,120,491 | |||||||
|
| |||||||
Emerging Market Quasi-Sovereign – 1.1% |
| |||||||
Bharat Petroleum Corp. Ltd., 4.625%, 10/25/2022 | $ | 1,865,000 | $ | 1,963,416 | ||||
Corporacion Financiera de Desarrollo S.A., 3.25%, 7/15/2019 (n) | 2,022,000 | 2,017,956 | ||||||
Indian Oil Corp. Ltd., 5.75%, 8/01/2023 | 933,000 | 1,021,197 | ||||||
|
| |||||||
$ | 5,002,569 | |||||||
|
| |||||||
Energy – Integrated – 1.1% | ||||||||
BP Capital Markets PLC, 2.521%, 1/15/2020 | $ | 1,371,000 | $ | 1,372,934 | ||||
Cenovus Energy, Inc., 3%, 8/15/2022 | 2,319,000 | 2,329,136 | ||||||
Cenovus Energy, Inc., 3.8%, 9/15/2023 | 738,000 | 759,336 | ||||||
Eni S.p.A., 4%, 9/12/2023 (n) | 860,000 | 896,096 | ||||||
|
| |||||||
$ | 5,357,502 | |||||||
|
| |||||||
Entertainment – 0.3% | ||||||||
Royal Caribbean Cruises Ltd., 2.65%, 11/28/2020 | $ | 1,207,000 | $ | 1,210,076 | ||||
|
| |||||||
Financial Institutions – 2.6% | ||||||||
AerCap Ireland Capital Ltd., 4.45%, 12/16/2021 | $ | 1,873,000 | $ | 1,944,779 | ||||
Avolon Holdings Funding Ltd., 3.625%, 5/01/2022 (n) | 1,955,000 | 1,981,588 | ||||||
Avolon Holdings Funding Ltd., 3.95%, 7/01/2024 (n) | 1,214,000 | 1,243,840 | ||||||
GE Capital International Funding Co., 2.342%, 11/15/2020 | 7,478,000 | 7,442,497 | ||||||
|
| |||||||
$ | 12,612,704 | |||||||
|
| |||||||
Food & Beverages – 1.1% | ||||||||
Conagra Brands, Inc., 3.8%, 10/22/2021 | $ | 1,197,000 | $ | 1,230,348 | ||||
Conagra Brands, Inc., FLR, 3.341% (LIBOR - 3mo. + 0.75%), 10/22/2020 | 855,000 | 855,136 | ||||||
Constellation Brands, Inc., FLR, 3.218% (LIBOR - 3mo. + 0.7%), 11/15/2021 | 852,000 | 852,427 | ||||||
Diageo PLC, 3%, 5/18/2020 | 1,460,000 | 1,468,182 | ||||||
Pernod Ricard S.A., 5.75%, 4/07/2021 (n) | 810,000 | 855,270 | ||||||
|
| |||||||
$ | 5,261,363 | |||||||
|
| |||||||
Gaming & Lodging – 0.4% | ||||||||
GLP Capital LP/GLP Financing II, Inc., 4.375%, 4/15/2021 | $ | 201,000 | $ | 204,491 | ||||
GLP Capital LP/GLP Financing II, Inc., 5.375%, 11/01/2023 | 1,459,000 | 1,564,311 | ||||||
|
| |||||||
$ | 1,768,802 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Health Maintenance Organizations – 0.4% |
| |||||||
Halfmoon Parent, Inc., FLR, 3.06% | ||||||||
(LIBOR - 3mo. + 0.65%), 9/17/2021 (n) | $ | 1,734,000 | $ | 1,734,731 | ||||
|
| |||||||
Industrial – 0.2% | ||||||||
Century Housing Corp., 3.995%, 11/01/2021 | $ | 748,000 | $ | 757,947 | ||||
|
| |||||||
Insurance – 0.3% | ||||||||
American International Group, Inc., 2.3%, 7/16/2019 | $ | 408,000 | $ | 407,967 | ||||
Metropolitan Life Global Funding I, 2%, 4/14/2020 (n) | 1,216,000 | 1,213,648 | ||||||
|
| |||||||
$ | 1,621,615 | |||||||
|
| |||||||
Insurance – Health – 0.5% | ||||||||
UnitedHealth Group, Inc., 1.95%, 10/15/2020 | $ | 2,580,000 | $ | 2,569,465 | ||||
|
| |||||||
Insurance – Property & Casualty – 0.2% |
| |||||||
Marsh & McLennan Cos., Inc., 2.75%, 1/30/2022 | $ | 860,000 | $ | 868,056 | ||||
|
| |||||||
International Market Quasi-Sovereign – 1.7% |
| |||||||
Caisse d’Amortissement de la Dette | ||||||||
Sociale, 1.875%, 1/13/2020 (n) | $ | 4,000,000 | $ | 3,993,241 | ||||
Dexia Credit Local S.A., 2.25%, 2/18/2020 (n) | 3,880,000 | 3,878,766 | ||||||
|
| |||||||
$ | 7,872,007 | |||||||
|
| |||||||
Internet – 0.4% | ||||||||
Baidu, Inc., 3.875%, 9/29/2023 | $ | 1,702,000 | $ | 1,763,576 | ||||
|
| |||||||
Machinery & Tools – 0.5% | ||||||||
CNH Industrial Capital LLC, 4.2%, 1/15/2024 | $ | 2,496,000 | $ | 2,597,459 | ||||
|
| |||||||
Major Banks – 13.5% | ||||||||
ABN AMRO Bank N.V., 2.65%, 1/19/2021 (n) | $ | 2,079,000 | $ | 2,086,134 | ||||
Bank of America Corp., 2.151%, 11/09/2020 | 2,661,000 | 2,652,848 | ||||||
Bank of America Corp., 2.369% to 7/21/2020, FLR (LIBOR - 3mo. + 0.66%) to 7/21/2021 | 2,408,000 | 2,405,375 | ||||||
Bank of America Corp., 2.738% to 1/23/2021, FLR (LIBOR - 3mo. + 2.738%) to 1/23/2022 | 1,454,000 | 1,460,524 | ||||||
Bank of America Corp., 2.881% to 4/24/2022, FLR (LIBOR - 3mo. + 1.021%) to 4/24/2023 | 3,106,000 | 3,138,447 | ||||||
Barclays PLC, 4.61% to 2/15/2022, FLR (LIBOR - 3mo. + 1.4%) to 2/15/2023 | 4,371,000 | 4,522,580 | ||||||
Citibank N.A., 2.125%, 10/20/2020 | 2,381,000 | 2,376,904 | ||||||
Commonwealth Bank of Australia, 2.3%, 9/06/2019 | 2,579,000 | 2,578,749 | ||||||
Credit Agricole, “A”, FLR, 4.014% (LIBOR - 3mo. + 1.43%), 1/10/2022 (n) | 1,270,000 | 1,287,460 | ||||||
Credit Suisse Group AG, 3.8%, 9/15/2022 | 1,027,000 | 1,064,693 | ||||||
Credit Suisse Group AG, 3.574%, 1/09/2023 (n) | 2,020,000 | 2,062,333 |
8
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Major Banks – continued | ||||||||
DNB Bank A.S.A., 2.125%, 10/02/2020 (n) | $ | 2,620,000 | $ | 2,611,564 | ||||
Goldman Sachs Group, Inc., 2.55%, 10/23/2019 | 3,414,000 | 3,415,266 | ||||||
Goldman Sachs Group, Inc., 3%, 4/26/2022 | 2,470,000 | 2,493,619 | ||||||
HSBC Holdings PLC, 3.262% to 3/13/2022, FLR (LIBOR - 3mo. + 1.055%) to 3/13/2023 | 1,745,000 | 1,777,428 | ||||||
HSBC Holdings PLC, 3.033% to 11/22/2022, FLR (LIBOR - 3mo. + 0.923%) to 11/22/2023 | 1,294,000 | 1,310,235 | ||||||
JPMorgan Chase & Co., 3.207% to 4/01/2022, FLR (LIBOR - 3mo. + 0.695%) to 4/01/2023 | 3,030,000 | 3,092,382 | ||||||
JPMorgan Chase & Co., 2.776% to 4/25/2022, FLR (LIBOR - 3mo. + 0.935%) to 4/25/2023 | 2,896,000 | 2,924,288 | ||||||
KeyBank N.A., 3.3%, 2/01/2022 | 416,000 | 426,939 | ||||||
Mitsubishi UFJ Financial Group, Inc., 2.95%, 3/01/2021 | 771,000 | 778,426 | ||||||
Mitsubishi UFJ Financial Group, Inc., 3.535%, 7/26/2021 | 1,749,000 | 1,788,339 | ||||||
Morgan Stanley, 2.375%, 7/23/2019 | 1,459,000 | 1,458,929 | ||||||
Morgan Stanley, 2.65%, 1/27/2020 | 2,300,000 | 2,302,632 | ||||||
National Australia Bank Ltd., 1.375%, 7/12/2019 | 1,900,000 | 1,899,462 | ||||||
NatWest Markets PLC, 3.625%, 9/29/2022 (n) | 895,000 | 914,553 | ||||||
PNC Bank N.A., 2.25%, 7/02/2019 | 1,080,000 | 1,080,000 | ||||||
Royal Bank of Scotland Group PLC, 4.269% to 3/22/2024, FLR (LIBOR - 3mo. + 1.762%) to 3/22/2025 | 1,367,000 | 1,413,739 | ||||||
SunTrust Bank, 2.8%, 5/17/2022 | 2,209,000 | 2,237,135 | ||||||
UBS AG, 2.375%, 8/14/2019 | 1,660,000 | 1,659,768 | ||||||
UBS Group Funding (Switzerland) AG, 3.491%, 5/23/2023 (n) | 3,498,000 | 3,586,069 | ||||||
UBS Group Funding Ltd., 3%, 4/15/2021 (n) | 1,590,000 | 1,604,546 | ||||||
|
| |||||||
$ | 64,411,366 | |||||||
|
| |||||||
Medical & Health Technology & Services – 0.6% |
| |||||||
Becton, Dickinson and Co., 2.404%, 6/05/2020 | $ | 1,234,000 | $ | 1,233,067 | ||||
Becton, Dickinson and Co., 2.894%, 6/06/2022 | 1,367,000 | 1,385,571 | ||||||
|
| |||||||
$ | 2,618,638 | |||||||
|
| |||||||
Medical Equipment – 0.4% | ||||||||
Zimmer Biomet Holdings, Inc., 2.7%, 4/01/2020 | $ | 1,289,000 | $ | 1,290,606 | ||||
Zimmer Biomet Holdings, Inc., FLR, 3.168% (LIBOR - 3mo. + 0.75%), 3/19/2021 | 511,000 | 510,455 | ||||||
|
| |||||||
$ | 1,801,061 | |||||||
|
| |||||||
Metals & Mining – 0.7% | ||||||||
Glencore Finance (Canada) Ltd., 4.95%, 11/15/2021 (n) | $ | 899,000 | $ | 942,493 | ||||
Glencore Funding LLC, 3%, 10/27/2022 (n) | 886,000 | 891,139 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Metals & Mining – continued | ||||||||
Glencore Funding LLC, 4.125%, 3/12/2024 (n) | $ | 1,354,000 | $ | 1,405,750 | ||||
Vale Overseas Ltd., 4.375%, 1/11/2022 | 300,000 | 309,078 | ||||||
|
| |||||||
$ | 3,548,460 | |||||||
|
| |||||||
Midstream – 1.2% | ||||||||
Andeavor Logistics LP/Tesoro Logistics | ||||||||
Finance Corp., 3.5%, 12/01/2022 | $ | 2,340,000 | $ | 2,395,417 | ||||
El Paso LLC, 6.5%, 9/15/2020 | 2,578,000 | 2,698,521 | ||||||
MPLX LP, 3.375%, 3/15/2023 | 690,000 | 705,862 | ||||||
|
| |||||||
$ | 5,799,800 | |||||||
|
| |||||||
Mortgage-Backed – 0.7% | ||||||||
Fannie Mae, 5.5%, 5/01/2025 | $ | 29,349 | $ | 29,815 | ||||
Fannie Mae, 5%, 7/01/2039 - 3/01/2042 | 1,110,789 | 1,206,329 | ||||||
Fannie Mae, 2%, 5/25/2044 | 2,286,831 | 2,279,982 | ||||||
Freddie Mac, 1.016%, 4/25/2024 (i) | 622,943 | 21,228 | ||||||
|
| |||||||
$ | 3,537,354 | |||||||
|
| |||||||
Municipals – 0.8% | ||||||||
New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, “B”, 0%, 2/15/2023 | $ | 4,091,000 | $ | 3,718,310 | ||||
|
| |||||||
Network & Telecom – 0.5% | ||||||||
AT&T, Inc., 3.2%, 3/01/2022 | $ | 2,171,000 | $ | 2,217,211 | ||||
|
| |||||||
Oils – 0.5% | ||||||||
Marathon Petroleum Corp., 4.75%, 12/15/2023 | $ | 993,000 | $ | 1,071,165 | ||||
Phillips 66, FLR, 3.12% (LIBOR - 3mo. + 0.6%), 2/26/2021 | 1,196,000 | 1,196,040 | ||||||
|
| |||||||
$ | 2,267,205 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 4.6% |
| |||||||
American Express Co., 3.7%, 11/05/2021 | $ | 1,704,000 | $ | 1,756,603 | ||||
Banque Federative du Credit Mutuel S.A., 2.2%, 7/20/2020 (n) | 2,614,000 | 2,610,764 | ||||||
Citigroup, Inc., 2.4%, 2/18/2020 | 4,151,000 | 4,150,985 | ||||||
Compass Bank, 3.5%, 6/11/2021 | 1,920,000 | 1,956,707 | ||||||
Compass Bank, 2.875%, 6/29/2022 | 2,717,000 | 2,739,969 | ||||||
Groupe BPCE S.A., 4%, 9/12/2023 (n) | 1,385,000 | 1,446,854 | ||||||
Groupe BPCE S.A., FLR, 3.675% (LIBOR - 3mo. + 1.24%), 9/12/2023 (n) | 1,385,000 | 1,387,465 | ||||||
Intesa Sanpaolo S.p.A., FLR, 3.218% (LIBOR - 3mo. + 0.63%), 7/17/2019 | 4,329,000 | 4,329,112 | ||||||
UniCredito Italiano S.p.A., 3.75%, 4/12/2022 (n) | 1,687,000 | 1,706,888 | ||||||
|
| |||||||
$ | 22,085,347 | |||||||
|
| |||||||
Pharmaceuticals – 2.1% | ||||||||
Actavis Funding SCS, 3.45%, 3/15/2022 | $ | 886,000 | $ | 904,619 | ||||
Bayer U.S. Finance II LLC, 3.5%, 6/25/2021 (n) | 3,162,000 | 3,207,799 | ||||||
Bristol-Myers Squibb Co., FLR, 2.904% (LIBOR - 3mo. + 0.38%), 5/16/2022 (n) | 444,000 | 445,056 | ||||||
Celgene Corp., 2.875%, 8/15/2020 | 1,091,000 | 1,096,789 | ||||||
Celgene Corp., 2.75%, 2/15/2023 | 1,806,000 | 1,822,025 |
9
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
Pharmaceuticals – continued | ||||||||
Shire Acquisitions Investments Ireland Designated Activity Co., 1.9%, 9/23/2019 | $ | 1,540,000 | $ | 1,537,613 | ||||
Takeda Pharmaceutical Co. Ltd., 3.8%, 11/26/2020 (n) | 1,180,000 | 1,201,408 | ||||||
|
| |||||||
$ | 10,215,309 | |||||||
|
| |||||||
Printing & Publishing – 0.3% | ||||||||
Moody’s Corp., 3.25%, 6/07/2021 | $ | 1,626,000 | $ | 1,648,996 | ||||
|
| |||||||
Retailers – 0.7% | ||||||||
Alimentation Couche-Tard, Inc., 2.35%, 12/13/2019 (n) | $ | 2,587,000 | $ | 2,584,102 | ||||
Macy’s Retail Holdings, Inc., 3.875%, 1/15/2022 | 631,000 | 642,115 | ||||||
|
| |||||||
$ | 3,226,217 | |||||||
|
| |||||||
Telecommunications – Wireless – 1.8% |
| |||||||
American Tower Corp., REIT, 2.8%, 6/01/2020 | $ | 857,000 | $ | 858,955 | ||||
American Tower Corp., REIT, 2.25%, 1/15/2022 | 500,000 | 497,308 | ||||||
American Tower Corp., REIT, 3%, 6/15/2023 | 2,118,000 | 2,138,543 | ||||||
Crown Castle International Corp., 3.4%, 2/15/2021 | 1,000,000 | 1,013,660 | ||||||
Crown Castle International Corp., 3.15%, 7/15/2023 | 1,093,000 | 1,114,171 | ||||||
SBA Tower Trust, 2.877%, 7/09/2021 (n) | 629,000 | 630,141 | ||||||
SBA Tower Trust, 2.898%, 10/15/2044 (n) | 2,395,000 | 2,394,969 | ||||||
|
| |||||||
$ | 8,647,747 | |||||||
|
| |||||||
Tobacco – 1.5% | ||||||||
B.A.T Capital Corp., 2.297%, 8/14/2020 | $ | 2,930,000 | $ | 2,923,906 | ||||
B.A.T Capital Corp., 2.764%, 8/15/2022 | 756,000 | 757,147 | ||||||
Imperial Tobacco Finance PLC, 2.95%, 7/21/2020 (n) | 1,343,000 | 1,346,628 | ||||||
Imperial Tobacco Finance PLC, 3.75%, 7/21/2022 (n) | 2,045,000 | 2,105,357 | ||||||
|
| |||||||
$ | 7,133,038 | |||||||
|
| |||||||
Transportation – Services – 0.3% |
| |||||||
TTX Co., 2.6%, 6/15/2020 (n) | $ | 1,660,000 | $ | 1,661,089 | ||||
|
| |||||||
U.S. Government Agencies and Equivalents – 0.4% |
| |||||||
National Credit Union Administration,“1-A”, FLR, 2.868% (LIBOR - 1mo. + 0.45%), 1/08/2020 | $ | 418,457 | $ | 419,413 |
Issuer | Shares/Par | Value ($) | ||||||
BONDS – continued | ||||||||
U.S. Government Agencies and Equivalents – continued |
| |||||||
National Credit Union Administration, FLR, 2.813% (LIBOR - 1mo. + 0.4%), 3/11/2020 | $ | 657,118 | $ | 658,311 | ||||
National Credit Union Administration, FLR, 2.868% (LIBOR - 1mo. + 0.45%), 10/07/2020 | 217,251 | 217,583 | ||||||
National Credit Union Administration, FLR, 2.768% (LIBOR - 1mo. + 0.35%), 12/07/2020 | 393,568 | 392,902 | ||||||
|
| |||||||
$ | 1,688,209 | |||||||
|
| |||||||
U.S. Treasury Obligations – 11.9% |
| |||||||
U.S. Treasury Notes, 1.875%, 2/28/2022 (f) | $ | 28,239,000 | $ | 28,343,793 | ||||
U.S. Treasury Notes, 1.875%, 4/30/2022 | 4,763,000 | 4,782,162 | ||||||
U.S. Treasury Notes, 2.375%, 1/31/2023 | 23,139,000 | 23,656,012 | ||||||
|
| |||||||
$ | 56,781,967 | |||||||
|
| |||||||
Utilities – Electric Power – 3.3% | ||||||||
Dominion Energy, Inc., 1.6%, 8/15/2019 | $ | 1,070,000 | $ | 1,068,477 | ||||
Dominion Energy, Inc., 2.579%, 7/01/2020 | 1,761,000 | 1,758,470 | ||||||
Emera U.S. Finance LP, 2.7%, 6/15/2021 | 503,000 | 504,719 | ||||||
Enel Finance International N.V., 2.875%, 5/25/2022 (n) | 2,670,000 | 2,691,148 | ||||||
Engie Energia Chile S.A., 5.625%, 1/15/2021 | 3,341,000 | 3,479,545 | ||||||
FirstEnergy Corp., 2.85%, 7/15/2022 | 856,000 | 866,494 | ||||||
Florida Power & Light Co., FLR, 2.965% (LIBOR - 3mo. + 0.4%), 5/06/2022 | 1,486,000 | 1,486,674 | ||||||
NextEra Energy, Inc., 2.9%, 4/01/2022 | 1,516,000 | 1,542,290 | ||||||
WEC Energy Group, Inc., 3.375%, 6/15/2021 | 1,635,000 | 1,667,086 | ||||||
WEC Energy Group, Inc., 3.1%, 3/08/2022 | 875,000 | 889,415 | ||||||
|
| |||||||
$ | 15,954,318 | |||||||
|
| |||||||
Total Bonds (Identified Cost, $466,304,335) | $ | 471,046,448 | ||||||
|
| |||||||
INVESTMENT COMPANIES (h) – 2.1% |
| |||||||
Money Market Funds – 2.1% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $10,087,830) | 10,087,826 | $ | 10,088,835 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (1.0)% | (4,822,709 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 476,312,574 | ||||||
|
|
(f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $10,088,835 and $471,046,448, respectively. |
(i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
(n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $203,527,335, representing 42.7% of net assets. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
10
Table of Contents
MFS Limited Maturity Portfolio
Portfolio of Investments (unaudited) – continued
(w) | When-issued security. At June 30, 2019, the fund had sufficient cash and/or securities at least equal to the value of the when-issued security. |
(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 | |||||||
Barclays Commercial Mortgage Securities LLC,2018-C2, “XA”, 0.938%, 12/15/2051 | 12/06/18 | $1,348,010 | $1,348,010 | |||||||
Nationstar HECM Loan Trust,2019-1A, “A”, 2.651%, 6/25/2029 | 6/13/19 | 1,034,999 | 1,034,999 | |||||||
West CLO Ltd.,2014-2A, “A1BR”, 2.724%, 1/16/2027 | 6/21/19 | 1,657,307 | 1,655,625 | |||||||
Wind River CLO Ltd.,2012-1A, “BR2”, FLR, 3.753% (LIBOR - 3mo. + 1.45%), 1/15/2026 | 6/19/19 | 2,251,428 | 2,251,428 | |||||||
Total Restricted Securities | $6,290,062 | |||||||||
% of Net assets | 1.3% |
The following abbreviations are used in this report and are defined:
CLO | Collateralized Loan Obligation |
FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). Theperiod-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
LIBOR | London Interbank Offered Rate |
REIT | Real Estate Investment Trust |
Derivative Contracts at 6/30/19
Futures Contracts
Description | Long/ Short | Currency | Contracts | Notional Amount | Expiration Date | Value/Unrealized Appreciation (Depreciation) | ||||||||||||||||
Asset Derivatives | ||||||||||||||||||||||
Interest Rate Futures | ||||||||||||||||||||||
U.S. Treasury Note 2 yr | Long | USD | 153 | $32,922,492 | September - 2019 | $106,617 | ||||||||||||||||
|
|
At June 30, 2019, the fund had liquid securities with an aggregate value of $80,297 to cover any collateral or margin obligations 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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value (identified cost, $466,304,335) | $471,046,448 | |||
Investments in affiliated issuers, at value (identified cost, $10,087,830) | 10,088,835 | |||
Receivables for | ||||
Fund shares sold | 15,656 | |||
Interest | 3,242,107 | |||
Other assets | 1,679 | |||
Total assets | $484,394,725 | |||
Liabilities | ||||
Payables for | ||||
Net daily variation margin on open futures contracts | $5,985 | |||
Investments purchased | 5,410,492 | |||
Fund shares reacquired | 279,202 | |||
When-issued investments purchased | 2,251,428 | |||
Payable to affiliates | ||||
Investment adviser | 20,385 | |||
Administrative services fee | 813 | |||
Shareholder servicing costs | 31 | |||
Distribution and/or service fees | 3,288 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 110,427 | |||
Total liabilities | $8,082,151 | |||
Net assets | $476,312,574 | |||
Net assets consist of | ||||
Paid-in capital | $455,261,920 | |||
Total distributable earnings (loss) | 21,050,654 | |||
Net assets | $476,312,574 | |||
Shares of beneficial interest outstanding | 45,551,239 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $356,269,268 | 34,052,750 | $10.46 | |||||||||
Service Class | 120,043,306 | 11,498,489 | 10.44 |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Interest | $8,045,728 | |||
Dividends from affiliated issuers | 48,576 | |||
Other | 95 | |||
Total investment income | $8,094,399 | |||
Expenses | ||||
Management fee | $944,797 | |||
Distribution and/or service fees | 148,111 | |||
Shareholder servicing costs | 2,587 | |||
Administrative services fee | 38,353 | |||
Independent Trustees’ compensation | 6,099 | |||
Custodian fee | 11,321 | |||
Shareholder communications | 19,847 | |||
Audit and tax fees | 32,787 | |||
Legal fees | 2,197 | |||
Miscellaneous | 22,377 | |||
Total expenses | $1,228,476 | |||
Reduction of expenses by investment adviser | (22,841 | ) | ||
Net expenses | $1,205,635 | |||
Net investment income (loss) | $6,888,764 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $137,421 | |||
Affiliated issuers | 973 | |||
Futures contracts | 154,150 | |||
Net realized gain (loss) | $292,544 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $9,471,491 | |||
Affiliated issuers | 1,005 | |||
Futures contracts | 14,308 | |||
Net unrealized gain (loss) | $9,486,804 | |||
Net realized and unrealized gain (loss) | $9,779,348 | |||
Change in net assets from operations | $16,668,112 |
See Notes to Financial Statements
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MFS Limited Maturity Portfolio
FINANCIAL STATEMENTS | STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
Six months ended 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $6,888,764 | $12,096,002 | ||||||
Net realized gain (loss) | 292,544 | (2,323,436 | ) | |||||
Net unrealized gain (loss) | 9,486,804 | (3,773,224 | ) | |||||
Change in net assets from operations | $16,668,112 | $5,999,342 | ||||||
Total distributions to shareholders | $— | $(10,355,191 | ) | |||||
Change in net assets from fund share transactions | $(18,062,386 | ) | $(94,953,212 | ) | ||||
Total change in net assets | $(1,394,274 | ) | $(99,309,061 | ) | ||||
Net assets | ||||||||
At beginning of period | 477,706,848 | 577,015,909 | ||||||
At end of period | $476,312,574 | $477,706,848 |
See Notes to Financial Statements
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MFS Limited Maturity Portfolio
FINANCIAL STATEMENTS | FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the 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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.10 | $10.18 | $10.17 | $10.14 | $10.23 | $10.32 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.15 | $0.23 | $0.18 | $0.15 | (c) | $0.12 | $0.11 | |||||||||||||||||
Net realized and unrealized gain (loss) | 0.21 | (0.10 | ) | (0.00 | )(w) | 0.02 | (0.07 | ) | (0.03 | ) | ||||||||||||||
Total from investment operations | $0.36 | $0.13 | $0.18 | $0.17 | $0.05 | $0.08 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.21 | ) | $(0.17 | ) | $(0.14 | ) | $(0.14 | ) | $(0.13 | ) | |||||||||||||
From net realized gain | — | — | — | — | — | (0.04 | ) | |||||||||||||||||
Total distributions declared to shareholders | $— | $(0.21 | ) | $(0.17 | ) | $(0.14 | ) | $(0.14 | ) | $(0.17 | ) | |||||||||||||
Net asset value, end of period (x) | $10.46 | $10.10 | $10.18 | $10.17 | $10.14 | $10.23 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.56 | (n) | 1.28 | 1.73 | 1.68 | (c) | 0.48 | 0.80 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.46 | (a) | 0.45 | 0.45 | 0.42 | (c) | 0.45 | 0.44 | ||||||||||||||||
Expenses after expense reductions (f) | 0.45 | (a) | 0.44 | 0.45 | 0.42 | (c) | 0.44 | 0.44 | ||||||||||||||||
Net investment income (loss) | 2.98 | (a) | 2.31 | 1.77 | 1.43 | (c) | 1.13 | 1.10 | ||||||||||||||||
Portfolio turnover | 26 | (n) | 62 | 54 | 30 | 26 | 24 | |||||||||||||||||
Net assets at end of period (000 omitted) | $356,269 | $359,909 | $434,320 | $473,730 | $520,750 | $627,457 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.09 | $10.17 | $10.16 | $10.12 | $10.20 | $10.30 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.14 | $0.21 | $0.16 | $0.12 | (c) | $0.09 | $0.09 | |||||||||||||||||
Net realized and unrealized gain (loss) | 0.21 | (0.11 | ) | (0.01 | ) | 0.03 | (0.06 | ) | (0.04 | ) | ||||||||||||||
Total from investment operations | $0.35 | $0.10 | $0.15 | $0.15 | $0.03 | $0.05 | ||||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.18 | ) | $(0.14 | ) | $(0.11 | ) | $(0.11 | ) | $(0.11 | ) | |||||||||||||
From net realized gain | — | — | — | — | — | (0.04 | ) | |||||||||||||||||
Total distributions declared to shareholders | $— | $(0.18 | ) | $(0.14 | ) | $(0.11 | ) | $(0.11 | ) | $(0.15 | ) | |||||||||||||
Net asset value, end of period (x) | $10.44 | $10.09 | $10.17 | $10.16 | $10.12 | $10.20 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 3.47 | (n) | 0.99 | 1.45 | 1.48 | (c) | 0.28 | 0.49 | ||||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.71 | (a) | 0.70 | 0.70 | 0.68 | (c) | 0.70 | 0.69 | ||||||||||||||||
Expenses after expense reductions (f) | 0.70 | (a) | 0.69 | 0.70 | 0.67 | (c) | 0.69 | 0.69 | ||||||||||||||||
Net investment income (loss) | 2.73 | (a) | 2.06 | 1.52 | 1.18 | (c) | 0.88 | 0.85 | ||||||||||||||||
Portfolio turnover | 26 | (n) | 62 | 54 | 30 | 26 | 24 | |||||||||||||||||
Net assets at end of period (000 omitted) | $120,043 | $117,798 | $142,696 | $153,979 | $172,581 | $211,505 |
See Notes to Financial Statements
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Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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. |
(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 Limited Maturity Portfolio
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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions.
In March 2017, the FASB issued Accounting Standards Update2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU2017-08”). For callable debt securities purchased at a premium that have explicit,non-contingent call features and that are callable at fixed prices on preset dates,ASU 2017-08 requires the premium to be amortized to the earliest call date. The fund adopted ASU2017-08 as of the beginning of the reporting period on a modified retrospective basis. The adoption resulted in a change in accounting principle, since the fund had historically amortized such premiums to maturity for U.S. GAAP. As a result of the adoption, the fund recognized a cumulative effect adjustment that decreased the beginning of period cost of investments and increased the unrealized appreciation on investments by offsetting amounts. Adoption had no impact on the fund’s net assets or any prior period information presented in the financial statements. With respect to the fund’s results of operations, amortization of premium to first call date under ASU2017-08 accelerates amortization with the intent of more closely aligning the recognition of income on such bonds with the economics of the instrument.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-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. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from
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MFS Limited Maturity Portfolio
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 halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments, such as futures contracts. The following is a summary of the levels used as of June 30, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. Treasury Bonds & U.S. Government Agency & Equivalents | $— | $58,470,176 | $— | $58,470,176 | ||||||||||||
Non-U.S. Sovereign Debt | — | 12,874,576 | — | 12,874,576 | ||||||||||||
Municipal Bonds | — | 3,718,310 | — | 3,718,310 | ||||||||||||
U.S. Corporate Bonds | — | 149,335,700 | — | 149,335,700 | ||||||||||||
Residential Mortgage-Backed Securities | — | 11,278,912 | — | 11,278,912 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 42,312,829 | — | 42,312,829 | ||||||||||||
Asset-Backed Securities (including CDOs) | — | 101,492,081 | — | 101,492,081 | ||||||||||||
Foreign Bonds | — | 91,563,864 | — | 91,563,864 | ||||||||||||
Mutual Funds | 10,088,835 | — | — | 10,088,835 | ||||||||||||
Total | $10,088,835 | $471,046,448 | $— | $481,135,283 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts – Assets | $106,617 | $— | �� | $— | $106,617 |
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 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 ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
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MFS Limited Maturity Portfolio
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, 2019 as reported in the Statement of Assets and Liabilities:
Fair Value (a) | ||||||
Risk | Derivative Contracts | Asset Derivatives | ||||
Interest Rate | Interest Rate Futures Contracts | $106,617 |
(a) | Values presented in this table for futures contracts correspond to the values reported in the fund’s Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the six months ended June 30, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $154,150 |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the six months ended June 30, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | |||
Interest Rate | $14,308 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Interest expense and fees” 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 specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
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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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Some securities may be purchased on a “when-issued” or “forward delivery” basis, which means that the securities will be delivered to the fund at a future date, usually beyond customary settlement time. Interest payments received in additional securities are recorded on theex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund 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. When the fund sells securities on a when-issued, delayed delivery, or forward commitment basis, the fund typically owns or has the right to acquire securities equivalent in kind and amount to the delivered securities. 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. When issued investments purchased are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy. 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 prior to settlement date or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors.
To mitigate the counterparty credit risk 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 specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, thenon-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 an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund’s collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Tax Matters and Distributions– The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
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Notes to Financial Statements (unaudited) – continued
Distributions to shareholders are recorded on theex-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.
During the year ended December 31, 2018, there were no significant adjustments due to differences between book and tax accounting.
The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $10,355,191 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $476,419,467 | |||
Gross appreciation | 5,261,599 | |||
Gross depreciation | (545,783 | ) | ||
Net unrealized appreciation (depreciation) | $4,715,816 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 12,197,851 | |||
Capital loss carryforwards | (3,066,167 | ) | ||
Net unrealized appreciation (depreciation) | (4,749,142 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of December 31, 2018, 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 | $(1,385,748 | ) | ||
Long-Term | (1,680,419 | ) | ||
Total | $(3,066,167 | ) |
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 6/30/19 | Year ended 12/31/18 | |||||||
Initial Class | $— | $8,077,594 | ||||||
Service Class | — | 2,277,597 | ||||||
Total | $— | $10,355,191 |
(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, 2019, this management fee reduction amounted to $22,841, 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, 2019 was equivalent to an annual effective rate of 0.39% of the fund’s average daily net assets.
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Notes to Financial Statements (unaudited) – continued
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 Rule12b-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, 2019, the fee was $2,504, which equated to 0.0011% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $83.
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, 2019 was equivalent to an annual effective rate of 0.0162% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $564 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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, 2019, purchases and sales of investments, other than short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $29,129,395 | $12,421,855 | ||||||
Non-U.S. Government securities | $94,127,153 | $122,330,645 |
(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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 1,045,917 | $10,746,874 | 848,249 | $8,593,262 | ||||||||||||
Service Class | 653,898 | 6,705,267 | 431,006 | 4,357,141 | ||||||||||||
1,699,815 | $17,452,141 | 1,279,255 | $12,950,403 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 804,541 | $8,077,594 | ||||||||||||
Service Class | — | — | 226,852 | 2,277,597 | ||||||||||||
— | $— | 1,031,393 | $10,355,191 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (2,630,636 | ) | $(26,985,519 | ) | (8,670,149 | ) | $(87,766,829 | ) | ||||||||
Service Class | (830,023 | ) | (8,529,008 | ) | (3,014,572 | ) | (30,491,977 | ) | ||||||||
(3,460,659 | ) | $(35,514,527 | ) | (11,684,721 | ) | $(118,258,806 | ) |
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MFS Limited Maturity Portfolio
Notes to Financial Statements (unaudited) – continued
Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Net change | ||||||||||||||||
Initial Class | (1,584,719 | ) | $(16,238,645 | ) | (7,017,359 | ) | $(71,095,973 | ) | ||||||||
Service Class | (176,125 | ) | (1,823,741 | ) | (2,356,714 | ) | (23,857,239 | ) | ||||||||
(1,760,844 | ) | $(18,062,386 | ) | (9,374,073 | ) | $(94,953,212 | ) |
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Portfolio, the MFS Conservative Allocation Portfolio, and the MFS Growth Allocation Portfolio were the owners of record of approximately 12%, 11%, and 1%, 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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $1,537 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $2,322,779 | $82,939,077 | $75,174,999 | $973 | $1,005 | $10,088,835 | ||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | $48,576 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/vit3 by choosing 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.
24
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Table of Contents
Semiannual Report
June 30, 2019
MFS® Mid Cap Value Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
VMC-SEM
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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
Table of Contents
MFS Mid Cap Value Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 Mid Cap Value Portfolio
Portfolio structure
Top ten holdings | ||||
Hartford Financial Services Group, Inc. | 1.5% | |||
NASDAQ, Inc. | 1.4% | |||
Stanley Black & Decker, Inc. | 1.2% | |||
Public Service Enterprise Group, Inc. | 1.1% | |||
KeyCorp | 1.1% | |||
Life Storage, Inc., REIT | 1.1% | |||
Analog Devices, Inc. | 1.1% | |||
Plains GP Holdings LP | 1.0% | |||
SunTrust Banks, Inc. | 1.0% | |||
Pioneer Natural Resources Co. | 1.0% |
GICS equity sectors (g) | ||||
Financials | 22.0% | |||
Information Technology | 12.1% | |||
Industrials | 11.9% | |||
Utilities | 9.7% | |||
Consumer Discretionary | 9.1% | |||
Real Estate | 7.3% | |||
Materials | 7.2% | |||
Energy | 6.3% | |||
Health Care | 5.7% | |||
Consumer Staples | 5.6% | |||
Communication Services | 1.6% |
(g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. |
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, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.81% | $1,000.00 | $1,199.46 | $4.42 | |||||||||||||
Hypothetical (h) | 0.81% | $1,000.00 | $1,020.78 | $4.06 | ||||||||||||||
Service Class | Actual | 1.06% | $1,000.00 | $1,197.28 | $5.77 | |||||||||||||
Hypothetical (h) | 1.06% | $1,000.00 | $1,019.54 | $5.31 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multipliedby the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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MFS Mid Cap Value Portfolio
PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 98.5% | ||||||||
Aerospace – 2.2% |
| |||||||
L3 Harris Technologies, Inc. | 7,745 | $ | 1,464,812 | |||||
L3 Technologies, Inc. | 10,773 | 2,641,216 | ||||||
Leidos Holdings, Inc. | 29,801 | 2,379,610 | ||||||
|
| |||||||
$ | 6,485,638 | |||||||
|
| |||||||
Airlines – 1.3% |
| |||||||
Alaska Air Group, Inc. | 17,269 | $ | 1,103,662 | |||||
Delta Air Lines, Inc. | 47,736 | 2,709,018 | ||||||
|
| |||||||
$ | 3,812,680 | |||||||
|
| |||||||
Alcoholic Beverages – 0.4% |
| |||||||
Molson Coors Brewing Co. | 19,563 | $ | 1,095,528 | |||||
|
| |||||||
Apparel Manufacturers – 0.8% |
| |||||||
PVH Corp. | 14,163 | $ | 1,340,386 | |||||
Skechers USA, Inc., “A” (a) | 34,759 | 1,094,561 | ||||||
|
| |||||||
$ | 2,434,947 | |||||||
|
| |||||||
Automotive – 1.5% |
| |||||||
Harley-Davidson, Inc. | 35,230 | $ | 1,262,291 | |||||
Lear Corp. | 11,947 | 1,663,859 | ||||||
LKQ Corp. (a) | 56,546 | 1,504,689 | ||||||
|
| |||||||
$ | 4,430,839 | |||||||
|
| |||||||
Broadcasting – 0.5% |
| |||||||
Interpublic Group of Companies, Inc. | 63,046 | $ | 1,424,209 | |||||
|
| |||||||
Brokerage & Asset Managers – 4.4% |
| |||||||
Apollo Global Management LLC, “A” | 66,631 | $ | 2,285,443 | |||||
Invesco Ltd. | 99,390 | 2,033,519 | ||||||
NASDAQ, Inc. | 42,780 | 4,114,153 | ||||||
Raymond James Financial, Inc. | 27,706 | 2,342,542 | ||||||
TD Ameritrade Holding Corp. | 47,032 | 2,347,838 | ||||||
|
| |||||||
$ | 13,123,495 | |||||||
|
| |||||||
Business Services – 3.0% |
| |||||||
Amdocs Ltd. | 45,615 | $ | 2,832,236 | |||||
DXC Technology Co. | 24,074 | 1,327,681 | ||||||
First Data Corp. (a) | 105,874 | 2,866,009 | ||||||
Global Payments, Inc. | 13,023 | 2,085,373 | ||||||
|
| |||||||
$ | 9,111,299 | |||||||
|
| |||||||
Cable TV – 0.5% |
| |||||||
Altice USA, Inc. (a) | 60,178 | $ | 1,465,334 | |||||
|
| |||||||
Chemicals – 3.2% |
| |||||||
Celanese Corp. | 17,498 | $ | 1,886,284 | |||||
Eastman Chemical Co. | 33,267 | 2,589,170 | ||||||
FMC Corp. | 30,587 | 2,537,192 | ||||||
PPG Industries, Inc. | 21,625 | 2,523,854 | ||||||
|
| |||||||
$ | 9,536,500 | |||||||
|
| |||||||
Computer Software – 0.4% |
| |||||||
Change Healthcare, Inc. (a) | 72,544 | $ | 1,059,142 | |||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Computer Software – Systems – 1.3% |
| |||||||
NCR Corp. (a) | 37,440 | $ | 1,164,384 | |||||
Verint Systems, Inc. (a) | 20,626 | 1,109,266 | ||||||
Zebra Technologies Corp., “A” (a) | 7,636 | 1,599,666 | ||||||
|
| |||||||
$ | 3,873,316 | |||||||
|
| |||||||
Construction – 5.4% |
| |||||||
Masco Corp. | 46,708 | $ | 1,832,822 | |||||
Mid-America Apartment Communities, Inc., REIT | 23,136 | 2,724,495 | ||||||
Mohawk Industries, Inc. (a) | 8,931 | 1,317,055 | ||||||
Owens Corning | 38,667 | 2,250,420 | ||||||
Stanley Black & Decker, Inc. | 23,993 | 3,469,628 | ||||||
Toll Brothers, Inc. | 62,199 | 2,277,727 | ||||||
Vulcan Materials Co. | 17,023 | 2,337,428 | ||||||
|
| |||||||
$ | 16,209,575 | |||||||
|
| |||||||
Consumer Products – 0.5% |
| |||||||
Energizer Holdings, Inc. | 12,254 | $ | 473,494 | |||||
Newell Brands, Inc. | 71,530 | 1,102,993 | ||||||
|
| |||||||
$ | 1,576,487 | |||||||
|
| |||||||
Containers – 2.5% |
| |||||||
Berry Global Group, Inc. (a) | 37,446 | $ | 1,969,285 | |||||
Graphic Packaging Holding Co. | 166,846 | 2,332,507 | ||||||
Sealed Air Corp. | 37,255 | 1,593,769 | ||||||
WestRock Co. | 42,764 | 1,559,603 | ||||||
|
| |||||||
$ | 7,455,164 | |||||||
|
| |||||||
Electrical Equipment – 2.2% |
| |||||||
HD Supply Holdings, Inc. (a) | 69,148 | $ | 2,785,281 | |||||
Sensata Technologies Holding PLC (a) | 38,325 | 1,877,925 | ||||||
TE Connectivity Ltd. | 18,961 | 1,816,085 | ||||||
|
| |||||||
$ | 6,479,291 | |||||||
|
| |||||||
Electronics – 4.1% |
| |||||||
Analog Devices, Inc. | 28,067 | $ | 3,167,922 | |||||
IPG Photonics Corp. (a) | 6,203 | 956,813 | ||||||
Keysight Technologies, Inc. (a) | 23,291 | 2,091,765 | ||||||
Marvell Technology Group Ltd. | 94,746 | 2,261,587 | ||||||
Maxim Integrated Products, Inc. | 39,948 | 2,389,689 | ||||||
NXP Semiconductors N.V. | 15,784 | 1,540,676 | ||||||
|
| |||||||
$ | 12,408,452 | |||||||
|
| |||||||
Energy – Independent – 4.2% |
| |||||||
Cabot Oil & Gas Corp. | 85,841 | $ | 1,970,909 | |||||
Concho Resources, Inc. | 8,293 | 855,672 | ||||||
Hess Corp. | 34,775 | 2,210,647 | ||||||
Marathon Petroleum Corp. | 45,899 | 2,564,836 | ||||||
Pioneer Natural Resources Co. | 20,175 | 3,104,126 | ||||||
WPX Energy, Inc. (a) | 159,981 | 1,841,381 | ||||||
|
| |||||||
$ | 12,547,571 | |||||||
|
|
4
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MFS Mid Cap Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Engineering – Construction – 1.0% |
| |||||||
KBR, Inc. | 122,942 | $ | 3,066,173 | |||||
|
| |||||||
Food & Beverages – 4.2% |
| |||||||
Archer Daniels Midland Co. | 61,198 | $ | 2,496,878 | |||||
Coca-Cola European Partners PLC | 34,923 | 1,973,150 | ||||||
Ingredion, Inc. | 17,434 | 1,438,131 | ||||||
J.M. Smucker Co. | 16,097 | 1,854,213 | ||||||
Kellogg Co. | 25,892 | 1,387,034 | ||||||
Post Holdings, Inc. (a) | 9,731 | 1,011,732 | ||||||
Sanderson Farms, Inc. | 11,433 | 1,561,291 | ||||||
TreeHouse Foods, Inc. (a) | 15,543 | 840,876 | ||||||
|
| |||||||
$ | 12,563,305 | |||||||
|
| |||||||
Food & Drug Stores – 0.6% | ||||||||
Kroger Co. | 87,933 | $ | 1,909,025 | |||||
|
| |||||||
Furniture & Appliances – 0.7% | ||||||||
Whirlpool Corp. | 14,582 | $ | 2,075,894 | |||||
|
| |||||||
Gaming & Lodging – 1.7% | ||||||||
Marriott International, Inc., “A” | 16,140 | $ | 2,264,281 | |||||
Royal Caribbean Cruises Ltd. | 16,049 | 1,945,299 | ||||||
Wyndham Hotels Group LLC | 18,673 | 1,040,833 | ||||||
|
| |||||||
$ | 5,250,413 | |||||||
|
| |||||||
General Merchandise – 0.6% | ||||||||
Dollar Tree, Inc. (a) | 17,789 | $ | 1,910,361 | |||||
|
| |||||||
Insurance – 8.2% | ||||||||
Aon PLC | 15,431 | $ | 2,977,874 | |||||
Arthur J. Gallagher & Co. | 33,308 | 2,917,448 | ||||||
Assurant, Inc. | 22,854 | 2,431,209 | ||||||
Athene Holding Ltd. (a) | 43,164 | 1,858,642 | ||||||
Everest Re Group Ltd. | 11,230 | 2,775,831 | ||||||
Hanover Insurance Group, Inc. | 16,725 | 2,145,818 | ||||||
Hartford Financial Services Group, Inc. | 81,578 | 4,545,526 | ||||||
Lincoln National Corp. | 36,194 | 2,332,703 | ||||||
Reinsurance Group of America, Inc. | 8,995 | 1,403,490 | ||||||
Unum Group | 39,280 | 1,317,844 | ||||||
|
| |||||||
$ | 24,706,385 | |||||||
|
| |||||||
Leisure & Toys – 1.2% | ||||||||
Brunswick Corp. | 35,452 | $ | 1,626,892 | |||||
Electronic Arts, Inc. (a) | 18,729 | 1,896,499 | ||||||
|
| |||||||
$ | 3,523,391 | |||||||
|
| |||||||
Machinery & Tools – 3.0% | ||||||||
AGCO Corp. | 31,456 | $ | 2,440,042 | |||||
Eaton Corp. PLC | 33,094 | 2,756,068 | ||||||
ITT, Inc. | 35,408 | 2,318,516 | ||||||
Regal Beloit Corp. | 20,228 | 1,652,830 | ||||||
|
| |||||||
$ | 9,167,456 | |||||||
|
| |||||||
Major Banks – 3.5% | ||||||||
Comerica, Inc. | 33,747 | $ | 2,451,382 | |||||
Huntington Bancshares, Inc. | 223,867 | 3,093,842 | ||||||
KeyCorp | 185,808 | 3,298,092 | ||||||
State Street Corp. | 32,165 | 1,803,170 | ||||||
|
| |||||||
$ | 10,646,486 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Medical & Health Technology & Services – 3.3% |
| |||||||
AmerisourceBergen Corp. | 24,259 | $ | 2,068,322 | |||||
Premier, Inc., “A” (a) | 51,982 | 2,033,016 | ||||||
Quest Diagnostics, Inc. | 29,871 | 3,041,167 | ||||||
Universal Health Services, Inc. | 20,551 | 2,679,645 | ||||||
|
| |||||||
$ | 9,822,150 | |||||||
|
| |||||||
Medical Equipment – 1.6% |
| |||||||
PerkinElmer, Inc. | 20,027 | $ | 1,929,401 | |||||
Zimmer Biomet Holdings, Inc. | 24,763 | 2,915,596 | ||||||
|
| |||||||
$ | 4,844,997 | |||||||
|
| |||||||
Natural Gas – Distribution – 1.8% |
| |||||||
NiSource, Inc. | 63,397 | $ | 1,825,833 | |||||
Sempra Energy | 18,177 | 2,498,247 | ||||||
South Jersey Industries, Inc. | 29,134 | 982,690 | ||||||
|
| |||||||
$ | 5,306,770 | |||||||
|
| |||||||
Natural Gas – Pipeline – 1.3% |
| |||||||
Equitrans Midstream Corp. | 45,877 | $ | 904,236 | |||||
Plains GP Holdings LP | 126,011 | 3,146,494 | ||||||
|
| |||||||
$ | 4,050,730 | |||||||
|
| |||||||
Network & Telecom – 0.9% |
| |||||||
Motorola Solutions, Inc. | 16,538 | $ | 2,757,381 | |||||
|
| |||||||
Oil Services – 1.1% |
| |||||||
Frank’s International N.V. (a) | 143,041 | $ | 781,004 | |||||
NOW, Inc. (a) | 73,514 | 1,085,067 | ||||||
Oil States International, Inc. (a) | 41,712 | 763,330 | ||||||
Patterson-UTI Energy, Inc. | 69,705 | 802,304 | ||||||
|
| |||||||
$ | 3,431,705 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 5.5% |
| |||||||
Discover Financial Services | 37,216 | $ | 2,887,590 | |||||
Element Fleet Management Corp. | 141,788 | 1,035,083 | ||||||
M&T Bank Corp. | 14,243 | 2,422,307 | ||||||
Northern Trust Corp. | 27,963 | 2,516,670 | ||||||
Signature Bank | 21,175 | 2,558,787 | ||||||
SunTrust Banks, Inc. | 49,834 | 3,132,067 | ||||||
Wintrust Financial Corp. | 28,269 | 2,068,160 | ||||||
|
| |||||||
$ | 16,620,664 | |||||||
|
| |||||||
Pharmaceuticals – 0.8% |
| |||||||
Elanco Animal Health, Inc. (a) | 48,368 | $ | 1,634,838 | |||||
Mylan N.V. (a) | 48,564 | 924,659 | ||||||
|
| |||||||
$ | 2,559,497 | |||||||
|
| |||||||
Pollution Control – 0.3% |
| |||||||
Stericycle, Inc. (a) | 21,020 | $ | 1,003,705 | |||||
|
| |||||||
Railroad & Shipping – 0.9% |
| |||||||
Kansas City Southern Co. | 21,773 | $ | 2,652,387 | |||||
|
| |||||||
Real Estate – 6.7% |
| |||||||
Annaly Mortgage Management, Inc., REIT | 102,659 | $ | 937,277 | |||||
Brixmor Property Group, Inc., REIT | 113,534 | 2,029,988 | ||||||
EPR Properties, REIT | 30,843 | 2,300,579 | ||||||
Life Storage, Inc., REIT | 33,462 | 3,181,567 | ||||||
Medical Properties Trust, Inc., REIT | 130,298 | 2,272,397 |
5
Table of Contents
MFS Mid Cap Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Real Estate – continued |
| |||||||
Spirit Realty Capital, Inc., REIT | 34,349 | $ | 1,465,328 | |||||
Sun Communities, Inc., REIT | 20,687 | 2,651,866 | ||||||
VICI Properties, Inc., REIT | 114,344 | 2,520,142 | ||||||
W.P. Carey, Inc., REIT | 35,259 | 2,862,326 | ||||||
|
| |||||||
$ | 20,221,470 | |||||||
|
| |||||||
Restaurants – 0.9% | ||||||||
Aramark | 35,675 | $ | 1,286,440 | |||||
Wendy’s Co. | 68,994 | 1,350,903 | ||||||
|
| |||||||
$ | 2,637,343 | |||||||
|
| |||||||
Specialty Chemicals – 1.4% | ||||||||
Axalta Coating Systems Ltd. (a) | 83,467 | $ | 2,484,812 | |||||
Univar, Inc. (a) | 78,172 | 1,722,911 | ||||||
|
| |||||||
$ | 4,207,723 | |||||||
|
| |||||||
Specialty Stores – 1.0% | ||||||||
BJ’s Wholesale Club Holdings, Inc. (a) | 28,935 | $ | 763,884 | |||||
Michaels Co., Inc. (a) | 54,054 | 470,270 | ||||||
Tractor Supply Co. | 10,946 | 1,190,925 | ||||||
Urban Outfitters, Inc. (a) | 23,886 | 543,406 | ||||||
|
| |||||||
$ | 2,968,485 | |||||||
|
| |||||||
Utilities – Electric Power – 7.9% | ||||||||
AES Corp. | 115,975 | $ | 1,943,741 | |||||
CenterPoint Energy, Inc. | 80,581 | 2,307,034 | ||||||
CMS Energy Corp. | 52,925 | 3,064,887 | ||||||
Eversource Energy | 39,444 | 2,988,277 | ||||||
FirstEnergy Corp. | 48,486 | 2,075,686 | ||||||
Pinnacle West Capital Corp. | 31,909 | 3,002,318 | ||||||
Public Service Enterprise Group, Inc. | 56,130 | 3,301,567 | ||||||
Southern Co. | 49,361 | 2,728,676 | ||||||
WEC Energy Group, Inc. | 29,249 | 2,438,489 | ||||||
|
| |||||||
$ | 23,850,675 | |||||||
|
| |||||||
Total Common Stocks (Identified Cost, $224,673,470) | $ | 296,284,038 | ||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – 1.6% |
| |||||||
Money Market Funds – 1.6% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $4,653,881) | 4,654,033 | $ | 4,654,498 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.1)% | (190,303 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 300,748,233 | ||||||
|
|
(a) | Non-income producing security. |
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $4,654,498 and $296,284,038, respectively. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value (identified cost, $224,673,470) | $296,284,038 | |||
Investments in affiliated issuers, at value (identified cost, $4,653,881) | 4,654,498 | |||
Receivables for | ||||
Investments sold | 1,654,800 | |||
Fund shares sold | 2,826 | |||
Dividends | 447,187 | |||
Other assets | 1,112 | |||
Total assets | $303,044,461 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $1,698,204 | |||
Fund shares reacquired | 502,137 | |||
Payable to affiliates | ||||
Investment adviser | 24,155 | |||
Administrative services fee | 553 | |||
Shareholder servicing costs | 69 | |||
Distribution and/or service fees | 1,740 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 69,270 | |||
Total liabilities | $2,296,228 | |||
Net assets | $300,748,233 | |||
Net assets consist of | ||||
Paid-in capital | $192,991,267 | |||
Total distributable earnings (loss) | 107,756,966 | |||
Net assets | $300,748,233 | |||
Shares of beneficial interest outstanding | 33,877,659 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $236,523,312 | 26,578,659 | $8.90 | |||||||||
Service Class | 64,224,921 | 7,299,000 | 8.80 |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends | $3,259,977 | |||
Dividends from affiliated issuers | 44,923 | |||
Other | 14,580 | |||
Foreign taxes withheld | (1,479 | ) | ||
Total investment income | $3,318,001 | |||
Expenses | ||||
Management fee | $1,098,934 | |||
Distribution and/or service fees | 77,473 | |||
Shareholder servicing costs | 5,587 | |||
Administrative services fee | 25,736 | |||
Independent Trustees’ compensation | 5,917 | |||
Custodian fee | 8,852 | |||
Shareholder communications | 10,370 | |||
Audit and tax fees | 27,933 | |||
Legal fees | 1,404 | |||
Miscellaneous | 15,193 | |||
Total expenses | $1,277,399 | |||
Reduction of expenses by investment adviser | (14,153 | ) | ||
Net expenses | $1,263,246 | |||
Net investment income (loss) | $2,054,755 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $7,079,563 | |||
Affiliated issuers | 151 | |||
Foreign currency | 136 | |||
Net realized gain (loss) | $7,079,850 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $43,141,914 | |||
Affiliated issuers | 625 | |||
Translation of assets and liabilities in foreign currencies | (17 | ) | ||
Net unrealized gain (loss) | $43,142,522 | |||
Net realized and unrealized gain (loss) | $50,222,372 | |||
Change in net assets from operations | $52,277,127 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $2,054,755 | $3,514,067 | ||||||
Net realized gain (loss) | 7,079,850 | 25,286,869 | ||||||
Net unrealized gain (loss) | 43,142,522 | (62,853,455 | ) | |||||
Change in net assets from operations | $52,277,127 | $(34,052,519 | ) | |||||
Total distributions to shareholders | $— | $(23,606,272 | ) | |||||
Change in net assets from fund share transactions | $(17,584,509 | ) | $(30,219,129 | ) | ||||
Total change in net assets | $34,692,618 | $(87,877,920 | ) | |||||
Net assets | ||||||||
At beginning of period | 266,055,615 | 353,933,535 | ||||||
At end of period | $300,748,233 | $266,055,615 |
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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $7.42 | $9.01 | $8.29 | $7.84 | $9.80 | $10.05 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.06 | $0.10 | $0.07 | $0.10 | (c) | $0.08 | $0.09 | |||||||||||||||||
Net realized and unrealized gain (loss) | 1.42 | (1.03 | ) | 1.03 | 1.12 | (0.37 | ) | 0.93 | ||||||||||||||||
Total from investment operations | $1.48 | $(0.93 | ) | $1.10 | $1.22 | $(0.29 | ) | $1.02 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.08 | ) | $(0.11 | ) | $(0.07 | ) | $(0.10 | ) | $(0.11 | ) | |||||||||||||
From net realized gain | — | (0.58 | ) | (0.27 | ) | (0.70 | ) | (1.57 | ) | (1.16 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.66 | ) | $(0.38 | ) | $(0.77 | ) | $(1.67 | ) | $(1.27 | ) | |||||||||||||
Net asset value, end of period (x) | $8.90 | $7.42 | $9.01 | $8.29 | $7.84 | $9.80 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 19.95 | (n) | (11.45 | ) | 13.67 | 15.98 | (c) | (2.33 | ) | 10.36 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 0.82 | (a) | 0.81 | 0.81 | 0.77 | (c) | 0.82 | 0.81 | ||||||||||||||||
Expenses after expense reductions (f) | 0.81 | (a) | 0.80 | 0.81 | 0.76 | (c) | 0.81 | 0.81 | ||||||||||||||||
Net investment income (loss) | 1.45 | (a) | 1.13 | 0.82 | 1.31 | (c) | 0.82 | 0.86 | ||||||||||||||||
Portfolio turnover | 12 | (n) | 32 | 36 | 32 | 51 | 55 | |||||||||||||||||
Net assets at end of period (000 omitted) | $236,523 | $210,218 | $268,291 | $271,001 | $274,753 | $322,888 | ||||||||||||||||||
Service Class | Six months 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $7.35 | $8.93 | $8.22 | $7.78 | $9.74 | $9.99 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.05 | $0.08 | $0.05 | $0.08 | (c) | $0.06 | $0.06 | |||||||||||||||||
Net realized and unrealized gain (loss) | 1.40 | (1.02 | ) | 1.02 | 1.12 | (0.38 | ) | 0.93 | ||||||||||||||||
Total from investment operations | $1.45 | $(0.94 | ) | $1.07 | $1.20 | $(0.32 | ) | $0.99 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.06 | ) | $(0.09 | ) | $(0.06 | ) | $(0.07 | ) | $(0.08 | ) | |||||||||||||
From net realized gain | — | (0.58 | ) | (0.27 | ) | (0.70 | ) | (1.57 | ) | (1.16 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.64 | ) | $(0.36 | ) | $(0.76 | ) | $(1.64 | ) | $(1.24 | ) | |||||||||||||
Net asset value, end of period (x) | $8.80 | $7.35 | $8.93 | $8.22 | $7.78 | $9.74 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 19.73 | (n) | (11.61 | ) | 13.41 | 15.76 | (c) | (2.66 | ) | 10.16 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.07 | (a) | 1.06 | 1.06 | 1.02 | (c) | 1.07 | 1.06 | ||||||||||||||||
Expenses after expense reductions (f) | 1.06 | (a) | 1.05 | 1.05 | 1.01 | (c) | 1.06 | 1.06 | ||||||||||||||||
Net investment income (loss) | 1.21 | (a) | 0.86 | 0.59 | 1.06 | (c) | 0.62 | 0.62 | ||||||||||||||||
Portfolio turnover | 12 | (n) | 32 | 36 | 32 | 51 | 55 | |||||||||||||||||
Net assets at end of period (000 omitted) | $64,225 | $55,837 | $85,643 | $59,545 | $55,100 | $38,611 |
See Notes to Financial Statements
10
Table of Contents
MFS Mid Cap Value Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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 anopen-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.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value.Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities 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.
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MFS Mid Cap Value Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $296,284,038 | $— | $— | $296,284,038 | ||||||||||||
Mutual Funds | 4,654,498 | — | — | 4,654,498 | ||||||||||||
Total | $300,938,536 | $— | $— | $300,938,536 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation– Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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 theex-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 theex-dividend date. Dividend payments received in additional securities are recorded on theex-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 theex-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.
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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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $6,261,207 | |||
Long-term capital gains | 17,345,065 | |||
Total distributions | $23,606,272 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $231,491,465 | |||
Gross appreciation | 80,168,330 | |||
Gross depreciation | (10,721,259 | ) | ||
Net unrealized appreciation (depreciation) | $69,447,071 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 5,691,407 | |||
Undistributed long-term capital gain | 22,988,153 | |||
Other temporary differences | (339 | ) | ||
Net unrealized appreciation (depreciation) | 26,800,618 |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $2,162,159 | $— | $15,550,404 | ||||||||||||
Service Class | — | 566,847 | — | 5,326,862 | ||||||||||||
Total | $— | $2,729,006 | $— | $20,877,266 |
(3) | Transactions with Affiliates |
Investment Adviser– The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund’s average daily net assets:
Up to $1 billion | 0.75% | |||
In excess of $1 billion | 0.70% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2019, this management fee reduction amounted to $14,153, 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, 2019 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 Rule12b-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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MFS Mid Cap Value Portfolio
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, 2019, the fee was $5,277, which equated to 0.0036% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $310.
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, 2019 was equivalent to an annual effective rate of 0.0175% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $343 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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 orsub-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 Rule17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2019, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $74,160 and $222,949, respectively. The sales transactions resulted in net realized gains (losses) of $151,519.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2019, this reimbursement amounted to $14,517, which is included in “Other” income in the Statement of Operations.
(4) | Portfolio Securities |
For the six months ended June 30, 2019, purchases and sales of investments, other than short-term obligations, aggregated $34,700,892 and $49,985,581, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 1,223,329 | $10,082,971 | 1,537,323 | $12,807,175 | ||||||||||||
Service Class | 264,982 | 2,237,602 | 704,611 | 5,837,659 | ||||||||||||
1,488,311 | $12,320,573 | 2,241,934 | $18,644,834 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 2,003,667 | $17,712,418 | ||||||||||||
Service Class | — | — | 673,567 | 5,893,709 | ||||||||||||
— | $— | 2,677,234 | $23,606,127 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (2,967,829 | ) | $(25,137,032 | ) | (4,984,368 | ) | $(44,609,006 | ) | ||||||||
Service Class | (564,994 | ) | (4,768,050 | ) | (3,367,267 | ) | (27,861,084 | ) | ||||||||
(3,532,823 | ) | $(29,905,082 | ) | (8,351,635 | ) | $(72,470,090 | ) |
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Notes to Financial Statements (unaudited) – continued
Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Net change | ||||||||||||||||
Initial Class | (1,744,500 | ) | $(15,054,061 | ) | (1,443,378 | ) | $(14,089,413 | ) | ||||||||
Service Class | (300,012 | ) | (2,530,448 | ) | (1,989,089 | ) | (16,129,716 | ) | ||||||||
(2,044,512 | ) | $(17,584,509 | ) | (3,432,467 | ) | $(30,219,129 | ) |
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 34%, 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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $833 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $4,541,238 | $29,952,383 | $29,839,899 | $151 | $625 | $4,654,498 | ||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | $44,923 | $— |
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MFS Mid Cap Value Portfolio
PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/vit3 by choosing 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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Table of Contents
Semiannual Report
June 30, 2019
MFS® Moderate Allocation Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
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
Table of Contents
MFS Moderate Allocation Portfolio
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Contract Owners:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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MFS Moderate Allocation Portfolio
Portfolio target allocation
Portfolio holdings | ||||
MFS Total Return Bond Series | 12.0% | |||
MFS Government Securities Portfolio | 9.9% | |||
MFS Growth Series | 9.0% | |||
MFS Value Series | 9.0% | |||
MFS Research Series | 8.0% | |||
MFS Mid Cap Value Portfolio | 7.1% | |||
MFS Mid Cap Growth Series | 7.0% | |||
MFS Research International Portfolio | 7.0% | |||
MFS High Yield Portfolio | 5.0% | |||
MFS Global Governments Portfolio | 5.0% | |||
MFS Inflation-Adjusted Bond Portfolio | 5.0% | |||
MFS Limited Maturity Portfolio | 3.9% | |||
MFS International Growth Portfolio | 3.0% | |||
MFS International Intrinsic Value Portfolio | 3.0% | |||
MFS Global Real Estate Portfolio | 3.0% | |||
MFS New Discovery Series | 1.5% | |||
MFS New Discovery Value Portfolio | 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. MFS endeavors to fully invest all MFSfunds-of-funds in underlying funds on a daily basis. Any divergence from 0.0% in Cash & Cash Equivalents is typically due to the timing of fund subscriptions/redemptions and the settlement of subsequent investment in/divestment from the underlying funds. While the MFSfunds-of-funds’ subscriptions/redemptions are processed at the same day NAV of the underlying funds, a positive/negative cash balance will be reflected on the MFSfunds-of-funds’ Statements of Assets and Liabilities until the trades with the underlying funds settle, which is typically two business days. Please see the Statements 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, 2019.
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, 2019 through June 30, 2019
As a contract holder of the fund, you incur ongoing costs, including distribution and/or service(12b-1) fees; and other fund 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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.02% | $1,000.00 | $1,151.46 | $0.11 | |||||||||||||
Hypothetical (h) | 0.02% | $1,000.00 | $1,024.70 | $0.10 | ||||||||||||||
Service Class | Actual | 0.27% | $1,000.00 | $1,150.75 | $1.44 | |||||||||||||
Hypothetical (h) | 0.27% | $1,000.00 | $1,023.46 | $1.35 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – 100.0% |
| |||||||
Bond Funds – 40.8% | ||||||||
MFS Global Governments Portfolio – Initial Class | 6,586,162 | $ | 72,052,610 | |||||
MFS Government Securities Portfolio – Initial Class | 11,403,540 | 144,026,704 | ||||||
MFS High Yield Portfolio – Initial Class | 12,434,462 | 72,119,881 | ||||||
MFS Inflation-Adjusted Bond Portfolio – Initial Class | 6,630,272 | 71,805,845 | ||||||
MFS Limited Maturity Portfolio – Initial Class | 5,471,305 | 57,229,855 | ||||||
MFS Total Return Bond Series – Initial Class | 12,764,601 | 173,215,634 | ||||||
|
| |||||||
$ | 590,450,529 | |||||||
|
| |||||||
International Stock Funds – 13.0% | ||||||||
MFS International Growth Portfolio – Initial Class | 2,881,808 | $ | 43,515,304 | |||||
MFS International Intrinsic Value Portfolio – Initial Class | 1,480,169 | 43,354,148 | ||||||
MFS Research International Portfolio – Initial Class | 6,152,856 | 101,522,128 | ||||||
|
| |||||||
$ | 188,391,580 | |||||||
|
| |||||||
Specialty Funds – 3.0% | ||||||||
MFS Global Real Estate Portfolio – Initial Class | 2,773,081 | $ | 42,871,836 | |||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
INVESTMENT COMPANIES (h) – continued |
| |||||||
U.S. Stock Funds – 43.1% | ||||||||
MFS Growth Series – Initial Class | 2,207,868 | $ | 130,573,325 | |||||
MFS Mid Cap Growth Series – Initial Class | 9,507,040 | 101,915,467 | ||||||
MFS Mid Cap Value Portfolio – Initial Class | 11,461,131 | 102,004,070 | ||||||
MFS New Discovery Series – Initial Class | 965,134 | 22,140,176 | ||||||
MFS New Discovery Value Portfolio – Initial Class | 2,156,181 | 21,734,300 | ||||||
MFS Research Series – Initial Class | 3,834,999 | 116,008,719 | ||||||
MFS Value Series – Initial Class | 6,378,263 | 130,563,034 | ||||||
|
| |||||||
$ | 624,939,091 | |||||||
|
| |||||||
Money Market Funds – 0.1% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) | 1,570,011 | $ | 1,570,168 | |||||
|
| |||||||
Total Investment Companies (Identified Cost, $1,176,561,971) |
| $ | 1,448,223,204 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.0)% | (122,569 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 1,448,100,635 | ||||||
|
|
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate value of the fund’s investments in affiliated issuers was $1,448,223,204. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-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 6/30/19 | ||||
Assets | ||||
Investments in affiliated issuers, at value (identified cost, $1,176,561,971) | $1,448,223,204 | |||
Receivables for | ||||
Investments sold | 1,557,061 | |||
Fund shares sold | 1,639 | |||
Other assets | 4,173 | |||
Total assets | $1,449,786,077 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $1,557,062 | |||
Payable to affiliates | ||||
Administrator | 192 | |||
Shareholder servicing costs | 95 | |||
Distribution and/or service fees | 39,316 | |||
Payable for independent Trustees’ compensation | 100 | |||
Accrued expenses and other liabilities | 88,677 | |||
Total liabilities | $1,685,442 | |||
Net assets | $1,448,100,635 | |||
Net assets consist of | ||||
Paid-in capital | $1,042,440,492 | |||
Total distributable earnings (loss) | 405,660,143 | |||
Net assets | $1,448,100,635 | |||
Shares of beneficial interest outstanding | 105,425,982 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $5,961,779 | 433,138 | $13.76 | |||||||||
Service Class | 1,442,138,856 | 104,992,844 | 13.74 |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends from affiliated issuers | $18,985 | |||
Other | 235 | |||
Total investment income | $19,220 | |||
Expenses | ||||
Distribution and/or service fees | $1,773,097 | |||
Shareholder servicing costs | 8,055 | |||
Administrative services fee | 8,679 | |||
Independent Trustees’ compensation | 15,810 | |||
Custodian fee | 12,073 | |||
Shareholder communications | 15,533 | |||
Audit and tax fees | 19,902 | |||
Legal fees | 6,215 | |||
Miscellaneous | 23,952 | |||
Total expenses | $1,883,316 | |||
Net investment income (loss) | $(1,864,096 | ) | ||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Affiliated issuers | $11,283,433 | |||
Change in unrealized appreciation or depreciation | ||||
Affiliated issuers | $190,148,324 | |||
Net realized and unrealized gain (loss) | $201,431,757 | |||
Change in net assets from operations | $199,567,661 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(1,864,096 | ) | $31,610,578 | |||||
Net realized gain (loss) | 11,283,433 | 97,595,633 | ||||||
Net unrealized gain (loss) | 190,148,324 | (183,982,990 | ) | |||||
Change in net assets from operations | $199,567,661 | $(54,776,779 | ) | |||||
Total distributions to shareholders | $— | $(101,853,938 | ) | |||||
Change in net assets from fund share transactions | $(121,673,995 | ) | $(165,219,330 | ) | ||||
Total change in net assets | $77,893,666 | $(321,850,047 | ) | |||||
Net assets | ||||||||
At beginning of period | 1,370,206,969 | 1,692,057,016 | ||||||
At end of period | $1,448,100,635 | $1,370,206,969 |
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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $11.95 | $13.33 | $12.25 | $12.48 | $13.34 | $13.02 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.00 | )(w) | $0.30 | $0.26 | $0.24 | (c) | $0.29 | $0.21 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.81 | (0.74 | ) | 1.60 | 0.55 | (0.27 | ) | 0.48 | ||||||||||||||||
Total from investment operations | $1.81 | $(0.44 | ) | $1.86 | $0.79 | $0.02 | $0.69 | |||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.29 | ) | $(0.28 | ) | $(0.37 | ) | $(0.55 | ) | $(0.21 | ) | |||||||||||||
From net realized gain | — | (0.65 | ) | (0.50 | ) | (0.65 | ) | (0.33 | ) | (0.16 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.94 | ) | $(0.78 | ) | $(1.02 | ) | $(0.88 | ) | $(0.37 | ) | |||||||||||||
Net asset value, end of period (x) | $13.76 | $11.95 | $13.33 | �� | $12.25 | $12.48 | $13.34 | |||||||||||||||||
Total return (%) (k)(s)(x) | 15.15 | (n) | (3.85 | ) | 15.52 | 6.16 | (c) | 0.35 | 5.28 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.02 | (a) | 0.01 | 0.01 | 0.02 | (c) | 0.01 | 0.01 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.01 | ||||||||||||||||||
Net investment income (loss) (l) | (0.01 | )(a) | 2.29 | 1.98 | 1.95 | (c) | 2.16 | 1.55 | ||||||||||||||||
Portfolio turnover | 1 | (n) | 1 | 0 | (b) | 0 | (b) | 1 | 2 | |||||||||||||||
Net assets at end of period (000 omitted) | $5,962 | $5,333 | $6,053 | $5,460 | $5,509 | $7,240 | ||||||||||||||||||
Service Class | Six months ended 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $11.94 | $13.32 | $12.24 | $12.47 | $13.32 | $13.00 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d)(l) | $(0.02 | ) | $0.27 | $0.22 | $0.21 | (c) | $0.22 | $0.17 | ||||||||||||||||
Net realized and unrealized gain (loss) | 1.82 | (0.75 | ) | 1.60 | 0.54 | (0.23 | ) | 0.49 | ||||||||||||||||
Total from investment operations | $1.80 | $(0.48 | ) | $1.82 | $0.75 | $(0.01 | ) | $0.66 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.25 | ) | $(0.24 | ) | $(0.33 | ) | $(0.51 | ) | $(0.18 | ) | |||||||||||||
From net realized gain | — | (0.65 | ) | (0.50 | ) | (0.65 | ) | (0.33 | ) | (0.16 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(0.90 | ) | $(0.74 | ) | $(0.98 | ) | $(0.84 | ) | $(0.34 | ) | |||||||||||||
Net asset value, end of period (x) | $13.74 | $11.94 | $13.32 | $12.24 | $12.47 | $13.32 | ||||||||||||||||||
Total return (%) (k)(s)(x) | 15.08 | (n) | (4.13 | ) | 15.23 | 5.87 | (c) | 0.13 | 5.04 | |||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.27 | (a) | 0.26 | 0.26 | 0.27 | (c) | 0.26 | 0.26 | ||||||||||||||||
Expenses after expense reductions (f)(h) | N/A | N/A | N/A | N/A | N/A | 0.26 | ||||||||||||||||||
Net investment income (loss) (l) | (0.26 | )(a) | 2.02 | 1.66 | 1.71 | (c) | 1.69 | 1.29 | ||||||||||||||||
Portfolio turnover | 1 | (n) | 1 | 0 | (b) | 0 | (b) | 1 | 2 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,442,139 | $1,364,874 | $1,686,004 | $1,721,397 | $1,837,130 | $2,121,968 |
See Notes to Financial Statements
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Financial Highlights – continued
(a) | Annualized. |
(b) | Less than 0.5%. |
(c) | Amount reflects aone-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 anopen-end management investment company. The shareholders of each series of the trust are separate accounts of insurance companies, which offer variable annuity and/or life insurance products, and qualified retirement and pension plans.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) | Significant Accounting Policies |
General– The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued.
The fund is a “fund of funds”, which invests the majority of its assets in other MFS mutual funds (hereafter referred to as “underlying affiliated funds” or “underlying funds”), which may have different fiscal year ends than the funds. The underlying funds, in turn, may engage in a number of investment techniques and practices, which involve certain risks. Certain underlying funds invest their portfolio in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. Certain underlying funds invest a significant portion of their assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae. Certain underlying funds invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting systems, and greater political, social, and economic instability than developed markets.
The accounting policies of the underlying funds in which the fund invests are outlined in the underlying funds’ shareholder reports, which are available without charge by calling1-800-225-2606, at mfs.com and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The underlying funds’ shareholder reports are not covered by this report.
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 thefund-of-funds invests.
Equity securities, including restricted equity securities and equity securities sold short, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Equity securities sold short, for which there were no sales reported 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 generally valued at the last daily bid quotation on their primary exchange as provided by athird-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
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Notes to Financial Statements (unaudited) – continued
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. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of June 30, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Mutual Funds | $1,448,223,204 | $— | $— | $1,448,223,204 |
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 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 ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the underlying funds use derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income– Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally
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Notes to Financial Statements (unaudited) – continued
accepted accounting principles. Distributions of income and capital gains from the underlying funds are recorded on theex-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 theex-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 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $31,476,824 | |||
Long-term capital gains | 70,377,114 | |||
Total distributions | $101,853,938 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $1,181,663,433 | |||
Gross appreciation | 274,335,968 | |||
Gross depreciation | (7,776,197 | ) | ||
Net unrealized appreciation (depreciation) | $266,559,771 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 31,666,992 | |||
Undistributed long-term capital gain | 98,014,043 | |||
Net unrealized appreciation (depreciation) | 76,411,447 |
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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $123,640 | $— | $274,674 | ||||||||||||
Service Class | — | 28,535,760 | — | 72,919,864 | ||||||||||||
Total | $— | $28,659,400 | $— | $73,194,538 |
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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. 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, 2021. For the six months ended June 30, 2019, 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 Rule12b-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, 2019, the fee was $8,008, which equated to 0.0011% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $47.
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, 2019 was equivalent to an annual effective rate of 0.0012% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $1,688 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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, 2019, purchases and sales of shares of underlying funds, excluding the MFS Institutional Money Market Portfolio, aggregated $14,747,109 and $138,270,305, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 10,420 | $135,327 | 15,595 | $205,746 | ||||||||||||
Service Class | 40,628 | 529,121 | 1,127,406 | 14,024,178 | ||||||||||||
51,048 | $664,448 | 1,143,001 | $14,229,924 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 30,592 | $398,314 | ||||||||||||
Service Class | — | — | 7,792,291 | 101,455,624 | ||||||||||||
— | $— | 7,822,883 | $101,853,938 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (23,361 | ) | $(298,722 | ) | (54,192 | ) | $(721,918 | ) | ||||||||
Service Class | (9,317,719 | ) | (122,039,721 | ) | (21,261,806 | ) | (280,581,274 | ) | ||||||||
(9,341,080 | ) | $(122,338,443 | ) | (21,315,998 | ) | $(281,303,192 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (12,941 | ) | $(163,395 | ) | (8,005 | ) | $(117,858 | ) | ||||||||
Service Class | (9,277,091 | ) | (121,510,600 | ) | (12,342,109 | ) | (165,101,472 | ) | ||||||||
(9,290,032 | ) | $(121,673,995 | ) | (12,350,114 | ) | $(165,219,330 | ) |
(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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $4,333 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) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Global Governments Portfolio | $72,191,316 | $48,053 | $4,207,256 | $(243,327 | ) | $4,263,824 | $72,052,610 | |||||||||||||||||
MFS Global Real Estate Portfolio | 40,998,536 | 4 | 5,251,954 | 1,071,422 | 6,053,828 | 42,871,836 | ||||||||||||||||||
MFS Government Securities Portfolio | 143,681,547 | 84,782 | 6,529,432 | (727,464 | ) | 7,517,271 | 144,026,704 | |||||||||||||||||
MFS Growth Series | 119,215,888 | 1,860,192 | 20,268,524 | 6,373,576 | 23,392,193 | 130,573,325 | ||||||||||||||||||
MFS High Yield Portfolio | 69,619,240 | 9,082 | 4,189,232 | (401,825 | ) | 7,082,616 | 72,119,881 | |||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | 70,937,202 | 34,906 | 3,785,087 | (112,783 | ) | 4,731,607 | 71,805,845 | |||||||||||||||||
MFS Institutional Money Market Portfolio | 1,565,905 | 1,960,223 | 1,956,218 | 12 | 246 | 1,570,168 | ||||||||||||||||||
MFS International Growth Portfolio | 41,060,583 | 8,056 | 4,773,421 | 96,837 | 7,123,249 | 43,515,304 | ||||||||||||||||||
MFS International Intrinsic Value Portfolio | 41,120,873 | 114,211 | 4,712,477 | 1,748,192 | 5,083,349 | 43,354,148 | ||||||||||||||||||
MFS Limited Maturity Portfolio | 56,740,356 | 27,516 | 1,517,760 | (9,006 | ) | 1,988,749 | 57,229,855 | |||||||||||||||||
MFS Mid Cap Growth Series | 92,378,020 | 2,254,246 | 19,446,623 | 1,188,347 | 25,541,477 | 101,915,467 | ||||||||||||||||||
MFS Mid Cap Value Portfolio | 91,914,038 | 1,943,725 | 10,002,010 | (224,994 | ) | 18,373,311 | 102,004,070 | |||||||||||||||||
MFS New Discovery Series | 19,333,252 | 592,236 | 3,681,964 | 163,951 | 5,732,701 | 22,140,176 | ||||||||||||||||||
MFS New Discovery Value Portfolio | 19,362,771 | 484,618 | 1,847,445 | (118,719 | ) | 3,853,075 | 21,734,300 | |||||||||||||||||
MFS Research International Portfolio | 93,601,860 | 1,329,368 | 9,374,935 | 786,270 | 15,179,565 | 101,522,128 | ||||||||||||||||||
MFS Research Series | 106,220,785 | 2,026,593 | 14,439,747 | 488,086 | 21,713,002 | 116,008,719 | ||||||||||||||||||
MFS Total Return Bond Series | 171,364,337 | 70,006 | 10,233,006 | (637,948 | ) | 12,652,245 | 173,215,634 | |||||||||||||||||
MFS Value Series | 119,004,128 | 3,859,515 | 14,009,431 | 1,842,805 | 19,866,017 | 130,563,034 | ||||||||||||||||||
$1,370,310,637 | $16,707,332 | $140,226,522 | $11,283,433 | $190,148,324 | $1,448,223,204 | |||||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Global Governments Portfolio | $— | $— | ||||||||||||||||||||||
MFS Global Real Estate Portfolio | — | — | ||||||||||||||||||||||
MFS Government Securities Portfolio | — | — | ||||||||||||||||||||||
MFS Growth Series | — | — | ||||||||||||||||||||||
MFS High Yield Portfolio | — | — | ||||||||||||||||||||||
MFS Inflation-Adjusted Bond Portfolio | — | — | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | 18,985 | — | ||||||||||||||||||||||
MFS International Growth Portfolio | — | — | ||||||||||||||||||||||
MFS International Intrinsic Value Portfolio | — | — | ||||||||||||||||||||||
MFS Limited Maturity Portfolio | — | — | ||||||||||||||||||||||
MFS Mid Cap Growth Series | — | — | ||||||||||||||||||||||
MFS Mid Cap Value Portfolio | — | — | ||||||||||||||||||||||
MFS New Discovery Series | — | — | ||||||||||||||||||||||
MFS New Discovery Value Portfolio | — | — | ||||||||||||||||||||||
MFS Research International Portfolio | — | — | ||||||||||||||||||||||
MFS Research Series | — | — | ||||||||||||||||||||||
MFS Total Return Bond Series | — | — | ||||||||||||||||||||||
MFS Value Series | — | — | ||||||||||||||||||||||
$18,985 | $— |
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/vit3by choosing 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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Table of Contents
Semiannual Report
June 30, 2019
MFS® New Discovery Value Portfolio
MFS® Variable Insurance Trust III
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, the insurance company that offers your contract may determine that it will no longer send you paper copies of the fund’s annual and semiannual shareholder reports unless you specifically request paper copies from the insurance company or from your financial intermediary. Instead, the shareholder reports will be made available on a Web site (insurancefunds.mfs.com or other Web site of which you will be notified), and the insurance company will notify you by mail each time a report is posted and provide you with a Web site link to access the report. Instructions for requesting paper copies will be provided by your insurance company or financial intermediary.
If you already elected to receive shareholder reports by email, you will not be affected by this change and you need not take any action. If your insurance company or financial intermediary offers electronic delivery, you may elect to receive shareholder reports and other communications from the insurance company or financial intermediary by email by following the instructions provided by the insurance company or financial intermediary.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge from the insurance company or financial intermediary. You can inform the insurance company or financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your insurance company or financial intermediary. Your election to receive reports in paper will apply to all funds held in your account with your insurance company or financial intermediary.
VDV-SEM
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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:
Slowing global growth, low inflation, and increasing trade friction between the United States and China have been hallmarks of the past 12 months. After experiencing an uptick in market volatility in late 2018, markets steadied during the first half of 2019, thanks in large measure to the adoption of a dovish policy stance on the part of global central banks, who have largely abandoned efforts to normalize interest rates and have instead focused on supporting economic growth. Trade tensions remain high as the U.S. has ratcheted up tariffs on Chinese imports and China has retaliated. A truce of sorts was reached midyear, but significant challenges continue to confront negotiators, and it is not known whether a comprehensive agreement can be reached.
With Boris Johnson replacing Theresa May as Britain’s prime minister, uncertainty over Brexit remains high. Johnson has adopted a more combative stance than his predecessor toward the European Union, increasing concerns that there will be a “hard” Brexit.
Markets expect that the longest economic expansion in U.S. history will continue for the time being, albeit at a slower pace. Nevertheless, slower growth and low inflation have spurred the U.S. Federal Reserve to take a more accommodative policy stance, prompting investors to anticipate several interest rate cuts in the coming year. The European Central Bank has adopted a similar position. The more accommodative environment has helped fuel a continued rise in global equities and has been broadly supportive of risk assets.
Since launching the first U.S.open-end mutual fund in 1924, MFS® has been committed to a single purpose: to create value by allocating capital responsibly for clients. Through our powerful global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to uncover what we believe are the best investment opportunities in the market.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
August 16, 2019
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 | ||||
Premier, Inc., “A” | 2.4% | |||
Owens Corning | 2.1% | |||
South Jersey Industries, Inc. | 2.1% | |||
Graphic Packaging Holding Co. | 2.0% | |||
Black Hills Corp. | 2.0% | |||
KBR, Inc. | 2.0% | |||
Portland General Electric Co. | 1.9% | |||
Toll Brothers, Inc. | 1.9% | |||
First Hawaiian, Inc. | 1.7% | |||
UMB Financial Corp. | 1.5% |
GICS equity sectors (g) | ||||
Financials | 23.4% | |||
Industrials | 18.0% | |||
Real Estate | 11.0% | |||
Consumer Discretionary | 10.2% | |||
Information Technology | 9.0% | |||
Materials | 7.4% | |||
Utilities | 6.8% | |||
Consumer Staples | 4.3% | |||
Energy | 3.9% | |||
Health Care | 3.3% | |||
Communication Services | 0.9% |
(g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. |
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, 2019.
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, 2019 through June 30, 2019
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, 2019 through June 30, 2019.
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 1/01/19 | Ending Account Value 6/30/19 | Expenses Paid During Period (p) 1/01/19-6/30/19 | ||||||||||||||
Initial Class | Actual | 0.88% | $1,000.00 | $1,192.90 | $4.78 | |||||||||||||
Hypothetical (h) | 0.88% | $1,000.00 | $1,020.43 | $4.41 | ||||||||||||||
Service Class | Actual | 1.13% | $1,000.00 | $1,190.93 | $6.14 | |||||||||||||
Hypothetical (h) | 1.13% | $1,000.00 | $1,019.19 | $5.66 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
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PORTFOLIO OF INVESTMENTS – 6/30/19 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – 98.2% |
| |||||||
Aerospace – 2.2% | ||||||||
CACI International, Inc., “A” (a) | 3,123 | $ | 638,935 | |||||
ManTech International Corp., “A” | 7,057 | 464,703 | ||||||
|
| |||||||
$ | 1,103,638 | |||||||
|
| |||||||
Apparel Manufacturers – 1.3% | ||||||||
Skechers USA, Inc., “A” (a) | 20,584 | $ | 648,190 | |||||
|
| |||||||
Automotive – 2.1% | ||||||||
LKQ Corp. (a) | 15,721 | $ | 418,336 | |||||
Stoneridge, Inc. (a) | 6,174 | 194,789 | ||||||
Visteon Corp. (a) | 7,355 | 430,856 | ||||||
|
| |||||||
$ | 1,043,981 | |||||||
|
| |||||||
Brokerage & Asset Managers – 1.4% |
| |||||||
TMX Group Ltd. | 9,905 | $ | 689,050 | |||||
|
| |||||||
Business Services – 2.2% | ||||||||
BrightView Holdings, Inc. (a) | 35,510 | $ | 664,392 | |||||
PRA Group, Inc. (a) | 14,720 | 414,221 | ||||||
|
| |||||||
$ | 1,078,613 | |||||||
|
| |||||||
Computer Software – 0.5% | ||||||||
8x8, Inc. (a) | 10,654 | $ | 256,761 | |||||
|
| |||||||
Computer Software – Systems – 2.6% | ||||||||
Model N, Inc. (a) | 21,054 | $ | 410,553 | |||||
Presidio, Inc. | 27,058 | 369,883 | ||||||
Verint Systems, Inc. (a) | 9,581 | 515,266 | ||||||
|
| |||||||
$ | 1,295,702 | |||||||
|
| |||||||
Construction – 5.2% | ||||||||
Eagle Materials, Inc. | 2,771 | $ | 256,872 | |||||
GMS, Inc. (a) | 15,689 | 345,158 | ||||||
Owens Corning | 18,098 | 1,053,303 | ||||||
Toll Brothers, Inc. | 25,392 | 929,855 | ||||||
|
| |||||||
$ | 2,585,188 | |||||||
|
| |||||||
Consumer Products – 2.7% | ||||||||
Newell Brands, Inc. | 25,448 | $ | 392,408 | |||||
Prestige Brands Holdings, Inc. (a) | 9,441 | 299,091 | ||||||
Sensient Technologies Corp. | 8,847 | 650,078 | ||||||
|
| |||||||
$ | 1,341,577 | |||||||
|
| |||||||
Containers – 3.2% | ||||||||
Berry Global Group, Inc. (a) | 10,316 | $ | 542,518 | |||||
Graphic Packaging Holding Co. | 72,023 | 1,006,882 | ||||||
|
| |||||||
$ | 1,549,400 | |||||||
|
| |||||||
Electrical Equipment – 2.7% | ||||||||
HD Supply Holdings, Inc. (a) | 14,494 | $ | 583,818 | |||||
TriMas Corp. (a) | 13,608 | 421,440 | ||||||
WESCO International, Inc. (a) | 6,705 | 339,608 | ||||||
|
| |||||||
$ | 1,344,866 | |||||||
|
|
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Electronics – 1.7% | ||||||||
nLIGHT, Inc. (a) | 14,668 | $ | 281,626 | |||||
Plexus Corp. (a) | 9,235 | 539,047 | ||||||
|
| |||||||
$ | 820,673 | |||||||
|
| |||||||
Energy – Independent – 1.2% | ||||||||
Matador Resources Co. (a) | 12,593 | $ | 250,349 | |||||
WPX Energy, Inc. (a) | 30,313 | 348,902 | ||||||
|
| |||||||
$ | 599,251 | |||||||
|
| |||||||
Engineering – Construction – 2.7% |
| |||||||
Construction Partners, Inc., “A” (a) | 22,241 | $ | 334,060 | |||||
KBR, Inc. | 39,610 | 987,873 | ||||||
|
| |||||||
$ | 1,321,933 | |||||||
|
| |||||||
Entertainment – 0.9% | ||||||||
IMAX Corp. (a) | 22,643 | $ | 457,389 | |||||
|
| |||||||
Food & Beverages – 3.6% | ||||||||
Cal-Maine Foods, Inc. | 8,144 | $ | 339,768 | |||||
Hostess Brands, Inc. (a) | 38,837 | 560,806 | ||||||
Nomad Foods Ltd. (a) | 17,213 | 367,670 | ||||||
Sanderson Farms, Inc. | 2,326 | 317,638 | ||||||
TreeHouse Foods, Inc. (a) | 3,422 | 185,130 | ||||||
|
| |||||||
$ | 1,771,012 | |||||||
|
| |||||||
Gaming & Lodging – 0.7% | ||||||||
Wyndham Hotels Group LLC | 6,332 | $ | 352,946 | |||||
|
| |||||||
Insurance – 2.6% | ||||||||
Everest Re Group Ltd. | 1,412 | $ | 349,018 | |||||
Hanover Insurance Group, Inc. | 3,875 | 497,163 | ||||||
Safety Insurance Group, Inc. | 1,469 | 139,746 | ||||||
Third Point Reinsurance Ltd. (a) | 26,800 | 276,576 | ||||||
|
| |||||||
$ | 1,262,503 | |||||||
|
| |||||||
Internet – 0.3% | ||||||||
Stamps.com, Inc. (a) | 3,480 | $ | 157,540 | |||||
|
| |||||||
Leisure & Toys – 1.2% | ||||||||
Brunswick Corp. | 12,505 | $ | 573,854 | |||||
|
| |||||||
Machinery & Tools – 5.0% | ||||||||
Actuant Corp., “A” | 10,507 | $ | 260,679 | |||||
AGCO Corp. | 5,792 | 449,285 | ||||||
ITT, Inc. | 5,716 | 374,284 | ||||||
Kennametal, Inc. | 18,011 | 666,227 | ||||||
Regal Beloit Corp. | 4,862 | 397,274 | ||||||
Ritchie Bros. Auctioneers, Inc. | 10,212 | 339,242 | ||||||
|
| |||||||
$ | 2,486,991 | |||||||
|
| |||||||
Medical & Health Technology & Services – 2.4% |
| |||||||
Premier, Inc., “A” (a) | 30,647 | $ | 1,198,604 | |||||
|
| |||||||
Natural Gas – Distribution – 2.9% |
| |||||||
New Jersey Resources Corp. | 7,931 | $ | 394,726 | |||||
South Jersey Industries, Inc. | 30,645 | 1,033,656 | ||||||
|
| |||||||
$ | 1,428,382 | |||||||
|
|
4
Table of Contents
MFS New Discovery Value Portfolio
Portfolio of Investments (unaudited) – continued
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued |
| |||||||
Oil Services – 3.4% | ||||||||
Apergy Corp. (a) | 4,111 | $ | 137,883 | |||||
Frank’s International N.V. (a) | 76,570 | 418,072 | ||||||
Liberty Oilfield Services, Inc. (l) | 12,935 | 209,289 | ||||||
NOW, Inc. (a) | 25,708 | 379,450 | ||||||
Patterson-UTI Energy, Inc. | 47,308 | 544,515 | ||||||
|
| |||||||
$ | 1,689,209 | |||||||
|
| |||||||
Other Banks & Diversified Financials – 19.2% |
| |||||||
Air Lease Corp. | 11,137 | $ | 460,404 | |||||
Bank of Hawaii Corp. | 8,093 | 670,991 | ||||||
Brookline Bancorp, Inc. | 33,909 | 521,520 | ||||||
Cathay General Bancorp, Inc. | 14,555 | 522,670 | ||||||
Cullen/Frost Bankers, Inc. | 3,218 | 301,398 | ||||||
CVB Financial Corp. | 10,581 | 222,518 | ||||||
Element Fleet Management Corp. | 91,195 | 665,743 | ||||||
First Hawaiian, Inc. | 31,948 | 826,495 | ||||||
Hanmi Financial Corp. | 22,239 | 495,263 | ||||||
Lakeland Financial Corp. | 14,195 | 664,752 | ||||||
Legacytextas Financial Group, Inc. | 9,425 | 383,692 | ||||||
Prosperity Bancshares, Inc. | 8,450 | 558,122 | ||||||
Sandy Spring Bancorp, Inc. | 7,261 | 253,264 | ||||||
Signature Bank | 4,198 | 507,286 | ||||||
TCF Financial Corp. | 26,989 | 561,101 | ||||||
Textainer Group Holdings Ltd. (a) | 22,917 | 231,003 | ||||||
UMB Financial Corp. | 11,573 | 761,735 | ||||||
Umpqua Holdings Corp. | 15,025 | 249,265 | ||||||
Wintrust Financial Corp. | 8,780 | 642,345 | ||||||
|
| |||||||
$ | 9,499,567 | |||||||
|
| |||||||
Pharmaceuticals – 0.3% | ||||||||
Genomma Lab Internacional S.A., “B” (a) | 143,412 | $ | 130,159 | |||||
|
| |||||||
Pollution Control – 1.1% | ||||||||
Evoqua Water Technologies LLC (a) | 19,427 | $ | 276,641 | |||||
Stericycle, Inc. (a) | 5,720 | 273,130 | ||||||
|
| |||||||
$ | 549,771 | |||||||
|
| |||||||
Real Estate – 11.8% | ||||||||
Brixmor Property Group, Inc., REIT | 30,048 | $ | 537,258 | |||||
Corporate Office Properties Trust, REIT | 27,370 | 721,747 | ||||||
Equity Commonwealth, REIT | 15,176 | 493,524 | ||||||
Industrial Logistics Properties Trust, REIT | 33,337 | 694,076 | ||||||
Lexington Realty Trust, REIT | 26,064 | 245,262 | ||||||
Life Storage, Inc., REIT | 5,217 | 496,032 | ||||||
Medical Properties Trust, Inc., REIT | 27,163 | 473,723 | ||||||
Office Properties Income Trust | 14,561 | 382,517 | ||||||
RMR Group, Inc., REIT | 1,910 | 89,732 | ||||||
Spirit Realty Capital, Inc., REIT | 9,091 | 387,822 | ||||||
STAG Industrial, Inc., REIT | 15,741 | 476,008 | ||||||
STORE Capital Corp., REIT | 13,889 | 460,976 | ||||||
Two Harbors Investment Corp, REIT | 29,728 | 376,654 | ||||||
|
| |||||||
$ | 5,835,331 | |||||||
|
| |||||||
Specialty Chemicals – 3.6% | ||||||||
Axalta Coating Systems Ltd. (a) | 10,576 | $ | 314,848 | |||||
Ferro Corp. (a) | 35,232 | 556,666 | ||||||
Ferroglobe PLC | 35,902 | 61,033 |
Issuer | Shares/Par | Value ($) | ||||||
COMMON STOCKS – continued | ||||||||
Specialty Chemicals – continued | ||||||||
RPM International, Inc. | 4,143 | $ | 253,179 | |||||
Univar, Inc. (a) | 27,556 | 607,334 | ||||||
|
| |||||||
$ | 1,793,060 | |||||||
|
| |||||||
Specialty Stores – 2.7% | ||||||||
BJ’s Wholesale Club Holdings, Inc. (a) | 14,166 | $ | 373,982 | |||||
Michaels Co., Inc. (a) | 18,043 | 156,974 | ||||||
Urban Outfitters, Inc. (a) | 11,535 | 262,421 | ||||||
Zumiez, Inc. (a) | 19,535 | 509,864 | ||||||
|
| |||||||
$ | 1,303,241 | |||||||
|
| |||||||
Trucking – 0.9% | ||||||||
Schneider National, Inc. | 22,589 | $ | 412,023 | |||||
|
| |||||||
Utilities – Electric Power – 3.9% | ||||||||
Black Hills Corp. | 12,725 | $ | 994,713 | |||||
Portland General Electric Co. | 17,236 | 933,674 | ||||||
|
| |||||||
$ | 1,928,387 | |||||||
|
| |||||||
Total Common Stocks (Identified Cost, $42,354,450) | $ | 48,508,792 | ||||||
|
| |||||||
INVESTMENT COMPANIES (h) – 2.5% |
| |||||||
Money Market Funds – 2.5% | ||||||||
MFS Institutional Money Market Portfolio, 2.42% (v) (Identified Cost, $1,250,446) | 1,250,528 | $ | 1,250,653 | |||||
|
| |||||||
COLLATERAL FOR SECURITIES LOANED – 0.1% |
| |||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 2.36% (Identified Cost, $33,366) | 33,366 | $ | 33,366 | |||||
|
| |||||||
OTHER ASSETS, LESS LIABILITIES – (0.8)% | (383,859 | ) | ||||||
|
| |||||||
NET ASSETS – 100.0% | $ | 49,408,952 | ||||||
|
|
(a) | Non-income producing security. |
(h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $1,250,653 and $48,542,158, respectively. |
(l) | A portion of this security is on loan. See Note 2 for additional information. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
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 6/30/19 | ||||
Assets | ||||
Investments in unaffiliated issuers, at value, including $163,256 of securities on loan (identified cost, $42,387,816) | $48,542,158 | |||
Investments in affiliated issuers, at value (identified cost, $1,250,446) | 1,250,653 | |||
Receivables for | ||||
Investments sold | 615,249 | |||
Fund shares sold | 20 | |||
Interest and dividends | 86,036 | |||
Receivable from investment adviser | 6,056 | |||
Other assets | 330 | |||
Total assets | $50,500,502 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $1,004,628 | |||
Fund shares reacquired | 13,878 | |||
Collateral for securities loaned, at value (c) | 33,366 | |||
Payable to affiliates | ||||
Administrative services fee | 192 | |||
Shareholder servicing costs | 15 | |||
Distribution and/or service fees | 247 | |||
Payable for independent Trustees’ compensation | 172 | |||
Accrued expenses and other liabilities | 39,052 | |||
Total liabilities | $1,091,550 | |||
Net assets | $49,408,952 | |||
Net assets consist of | ||||
Paid-in capital | $33,943,468 | |||
Total distributable earnings (loss) | 15,465,484 | |||
Net assets | $49,408,952 | |||
Shares of beneficial interest outstanding | 4,910,273 |
Net assets | Shares outstanding | Net asset value per share | ||||||||||
Initial Class | $40,238,809 | 3,991,737 | $10.08 | |||||||||
Service Class | 9,170,143 | 918,536 | 9.98 |
(c) | Non-cash collateral is not included. |
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 6/30/19 | ||||
Net investment income (loss) | ||||
Income | ||||
Dividends | $478,271 | |||
Dividends from affiliated issuers | 8,475 | |||
Other | 2,006 | |||
Income on securities loaned | 147 | |||
Foreign taxes withheld | (2,967 | ) | ||
Total investment income | $485,932 | |||
Expenses | ||||
Management fee | $219,283 | |||
Distribution and/or service fees | 11,240 | |||
Shareholder servicing costs | 1,240 | |||
Administrative services fee | 8,692 | |||
Independent Trustees’ compensation | 955 | |||
Custodian fee | 3,018 | |||
Shareholder communications | 3,405 | |||
Audit and tax fees | 27,194 | |||
Legal fees | 306 | |||
Miscellaneous | 12,314 | |||
Total expenses | $287,647 | |||
Reduction of expenses by investment adviser | (61,649 | ) | ||
Net expenses | $225,998 | |||
Net investment income (loss) | $259,934 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $1,233,652 | |||
Affiliated issuers | (107 | ) | ||
Foreign currency | 91 | |||
Net realized gain (loss) | $1,233,636 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $7,050,008 | |||
Affiliated issuers | 207 | |||
Translation of assets and liabilities in foreign currencies | (131 | ) | ||
Net unrealized gain (loss) | $7,050,084 | |||
Net realized and unrealized gain (loss) | $8,283,720 | |||
Change in net assets from operations | $8,543,654 |
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 6/30/19 | Year ended 12/31/18 | |||||||
(unaudited) | ||||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $259,934 | $354,243 | ||||||
Net realized gain (loss) | 1,233,636 | 7,784,108 | ||||||
Net unrealized gain (loss) | 7,050,084 | (13,225,145 | ) | |||||
Change in net assets from operations | $8,543,654 | $(5,086,794 | ) | |||||
Total distributions to shareholders | $— | $(8,120,059 | ) | |||||
Change in net assets from fund share transactions | $(4,187,312 | ) | $1,882,024 | |||||
Total change in net assets | $4,356,342 | $(11,324,829 | ) | |||||
Net assets | ||||||||
At beginning of period | 45,052,610 | 56,377,439 | ||||||
At end of period | $49,408,952 | $45,052,610 |
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 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $8.45 | $11.13 | $10.79 | $9.44 | $10.74 | $12.12 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.05 | $0.08 | $0.05 | $0.09 | (c) | $0.09 | $0.06 | |||||||||||||||||
Net realized and unrealized gain (loss) | 1.58 | (0.94 | ) | 1.44 | 2.34 | (0.40 | ) | 0.35 | ||||||||||||||||
Total from investment operations | $1.63 | $(0.86 | ) | $1.49 | $2.43 | $(0.31 | ) | $0.41 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.06 | ) | $(0.11 | ) | $(0.10 | ) | $(0.07 | ) | $(0.07 | ) | |||||||||||||
From net realized gain | — | (1.76 | ) | (1.04 | ) | (0.98 | ) | (0.92 | ) | (1.72 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.82 | ) | $(1.15 | ) | $(1.08 | ) | $(0.99 | ) | $(1.79 | ) | |||||||||||||
Net asset value, end of period (x) | $10.08 | $8.45 | $11.13 | $10.79 | $9.44 | $10.74 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 19.29 | (n) | (10.78 | ) | 15.24 | 27.03 | (c) | (2.56 | ) | 3.44 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.13 | (a) | 1.11 | 1.08 | 1.05 | (c) | 1.10 | 1.10 | ||||||||||||||||
Expenses after expense reductions (f) | 0.88 | (a) | 0.88 | 0.88 | 0.87 | (c) | 0.88 | 0.98 | ||||||||||||||||
Net investment income (loss) | 1.11 | (a) | 0.72 | 0.48 | 0.91 | (c) | 0.83 | 0.56 | ||||||||||||||||
Portfolio turnover | 20 | (n) | 55 | 52 | 48 | 53 | 49 | |||||||||||||||||
Net assets at end of period (000 omitted) | $40,239 | $36,665 | $45,470 | $46,635 | $47,068 | $54,917 | ||||||||||||||||||
Service Class | Six months ended 6/30/19 | Year ended | ||||||||||||||||||||||
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Net asset value, beginning of period | $8.38 | $11.05 | $10.72 | $9.38 | $10.68 | $12.06 | ||||||||||||||||||
Income (loss) from investment operations | ||||||||||||||||||||||||
Net investment income (loss) (d) | $0.04 | $0.05 | $0.03 | $0.06 | (c) | $0.06 | $0.03 | |||||||||||||||||
Net realized and unrealized gain (loss) | 1.56 | (0.93 | ) | 1.43 | 2.33 | (0.40 | ) | 0.34 | ||||||||||||||||
Total from investment operations | $1.60 | $(0.88 | ) | $1.46 | $2.39 | $(0.34 | ) | $0.37 | ||||||||||||||||
Less distributions declared to shareholders | ||||||||||||||||||||||||
From net investment income | $— | $(0.03 | ) | $(0.09 | ) | $(0.07 | ) | $(0.04 | ) | $(0.03 | ) | |||||||||||||
From net realized gain | — | (1.76 | ) | (1.04 | ) | (0.98 | ) | (0.92 | ) | (1.72 | ) | |||||||||||||
Total distributions declared to shareholders | $— | $(1.79 | ) | $(1.13 | ) | $(1.05 | ) | $(0.96 | ) | $(1.75 | ) | |||||||||||||
Net asset value, end of period (x) | $9.98 | $8.38 | $11.05 | $10.72 | $9.38 | $10.68 | ||||||||||||||||||
Total return (%) (k)(r)(s)(x) | 19.09 | (n) | (11.00 | ) | 15.01 | 26.73 | (c) | (2.90 | ) | 3.19 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: | ||||||||||||||||||||||||
Expenses before expense reductions (f) | 1.38 | (a) | 1.36 | 1.33 | 1.30 | (c) | 1.35 | 1.35 | ||||||||||||||||
Expenses after expense reductions (f) | 1.13 | (a) | 1.13 | 1.13 | 1.12 | (c) | 1.13 | 1.23 | ||||||||||||||||
Net investment income (loss) | 0.86 | (a) | 0.45 | 0.24 | 0.66 | (c) | 0.58 | 0.30 | ||||||||||||||||
Portfolio turnover | 20 | (n) | 55 | 52 | 48 | 53 | 49 | |||||||||||||||||
Net assets at end of period (000 omitted) | $9,170 | $8,387 | $10,907 | $8,376 | $8,437 | $10,305 |
See Notes to Financial Statements
9
Table of Contents
MFS New Discovery Value Portfolio
Financial Highlights – continued
(a) | Annualized. |
(c) | Amount reflects aone-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 anopen-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.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value.Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities 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
11
Table of Contents
MFS New Discovery Value Portfolio
Notes to Financial Statements (unaudited) – continued
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, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $48,508,792 | $— | $— | $48,508,792 | ||||||||||||
Mutual Funds | 1,284,019 | — | — | 1,284,019 | ||||||||||||
Total | $49,792,811 | $— | $— | $49,792,811 |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation– Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Security Loans– Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $163,256. The fair value of the fund’s investment securities on loan and a related liability of $33,366 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 $133,916 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Indemnifications– Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
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 theex-dividend date. Certain dividends from foreign securities will be
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recorded when the fund is informed of the dividend if such information is obtained subsequent to theex-dividend date. Dividend payments received in additional securities are recorded on theex-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 theex-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 made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
Year ended 12/31/18 | ||||
Ordinary income (including any short-term capital gains) | $1,718,040 | |||
Long-term capital gains | 6,402,019 | |||
Total distributions | $8,120,059 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 6/30/19 | ||||
Cost of investments | $43,987,259 | |||
Gross appreciation | 8,335,837 | |||
Gross depreciation | (2,530,285 | ) | ||
Net unrealized appreciation (depreciation) | $5,805,552 | |||
As of 12/31/18 | ||||
Undistributed ordinary income | 1,923,003 | |||
Undistributed long-term capital gain | 6,199,599 | |||
Other temporary differences | 43,891 | |||
Net unrealized appreciation (depreciation) | (1,244,663 | ) |
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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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 | |||||||||||||||
Six months ended 6/30/19 | Year ended 12/31/18 | Six months ended 6/30/19 | Year ended 12/31/18 | |||||||||||||
Initial Class | $— | $210,688 | $— | $6,343,164 | ||||||||||||
Service Class | — | 24,321 | — | 1,541,886 | ||||||||||||
Total | $— | $235,009 | $— | $7,885,050 |
(3) | Transactions with Affiliates |
Investment Adviser– The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates based on the fund’s average daily net assets:
Up to $250 million | 0.90% | |||
In excess of $250 million | 0.85% |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the six months ended June 30, 2019, this management fee reduction amounted to $2,354, 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, 2019 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, 2021. For the six months ended June 30, 2019, this reduction amounted to $59,295, 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 Rule12b-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, 2019, the fee was $1,154, which equated to 0.0047% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses paid by MFSC on behalf of the fund. For the six months ended June 30, 2019, these costs amounted to $86.
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, 2019 was equivalent to an annual effective rate of 0.0356% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation– The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other– This fund and certain other funds managed by MFS (the funds) had entered into a service agreement (the ISO Agreement) which provided 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 served as the ISO and was an officer of the funds and the sole member of Tarantino LLC. Effective June 30, 2019, Mr. Tarantino retired from his position as ISO for the funds, and the ISO Agreement was
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terminated. For the six months ended June 30, 2019, the fee paid by the fund under this agreement was $57 and is included in “Miscellaneous” expense in the Statement of Operations. MFS had 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 orsub-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 Rule17a-7 under the Investment Company Act of 1940. During the six months ended June 30, 2019, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $216,021 and $58,297, respectively. The sales transactions resulted in net realized gains (losses) of $(33,654).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the six months ended June 30, 2019, this reimbursement amounted to $1,987, which is included in “Other” income in the Statement of Operations.
(4) | Portfolio Securities |
For the six months ended June 30, 2019, purchases and sales of investments, other than short-term obligations, aggregated $9,672,408 and $14,052,367, 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 6/30/19 | Year ended 12/31/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Initial Class | 111,735 | $1,029,873 | 294,759 | $2,955,370 | ||||||||||||
Service Class | 48,557 | 465,471 | 176,624 | 1,734,797 | ||||||||||||
160,292 | $1,495,344 | 471,383 | $4,690,167 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Initial Class | — | $— | 632,611 | $6,553,852 | ||||||||||||
Service Class | — | — | 152,355 | 1,566,207 | ||||||||||||
— | $— | 784,966 | $8,120,059 | |||||||||||||
Shares reacquired | ||||||||||||||||
Initial Class | (458,457 | ) | $(4,429,706 | ) | (675,413 | ) | $(7,576,858 | ) | ||||||||
Service Class | (130,902 | ) | (1,252,950 | ) | (315,574 | ) | (3,351,344 | ) | ||||||||
(589,359 | ) | $(5,682,656 | ) | (990,987 | ) | $(10,928,202 | ) | |||||||||
Net change | ||||||||||||||||
Initial Class | (346,722 | ) | $(3,399,833 | ) | 251,957 | $1,932,364 | ||||||||||
Service Class | (82,345 | ) | (787,479 | ) | 13,405 | (50,340 | ) | |||||||||
(429,067 | ) | $(4,187,312 | ) | 265,362 | $1,882,024 |
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 44%, 15%, and 9%, 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 syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the six months ended June 30, 2019, the fund’s commitment fee and interest expense were $140 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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(7) | Investments in Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $429,251 | $7,351,402 | $6,530,100 | $(107 | ) | $207 | $1,250,653 | |||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio | $8,475 | $— |
(8) | Subsequent Event |
Effective at the close of business on August 14, 2019, the fund is closed to new investors subject to certain exceptions. Please see the fund’s prospectus for details.
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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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://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 visitingmfs.com/proxyvoting, or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q or as an exhibit to its reports on Form N-PORT (for first and third fiscal quarters ending March 31, 2019 or after). The fund’sForm N-Q or Form N-PORT reports are available on the SEC’s website athttp://www.sec.gov.A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/vit3 by choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/vit3 by choosing 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. |
During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this FormN-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
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 FormN-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 8. | PORTFOLIO MANAGERS OFCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BYCLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the Registrant.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of RegulationS-K or this Item.
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ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on FormN-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 Rule30a-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 FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 13. | EXHIBITS. |
(a) (1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. Not applicable. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule30a-2(a) under the Act (17 CFR270.30a-2): Attached hereto asEX-99.302CERT. |
(3) | Any written solicitation to purchase securities under Rule23c-1 under the Act (17 CFR270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. |
(4) | Change in the registrant’s independent public accountant. Not applicable. |
(b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule30a-2(b) under the Act (17 CFR270.30a-2(b)), Rule13a-14(b) or Rule15d-14(b) under the Exchange Act (17 CFR240.13a-14(b) or240.15d-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 asEX-99.906CERT. |
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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, 2019
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, 2019
By (Signature and Title)* | JAMES O. YOST | |
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: August 16, 2019
* | Print name and title of each signing officer under his or her signature. |