<PAGE>
[LOGO] MFS(R) SEMIANNUAL REPORT
THE FIRST NAME IN MUTUAL FUNDS JUNE 30, 1996
MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[graphic omitted: two men sitting in front of a window]
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MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 1400
PORTFOLIO MANAGER Boston, MA 02107-9906
Maura Shaughnessy*
For additional information,
TREASURER contact your financial adviser.
W. Thomas London*
CUSTODIAN
ASSISTANT TREASURER Investors Bank & Trust Company
James O. Yost*
AUDITORS
SECRETARY Deloitte & Touche LLP
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
Dear Contract Owner:
Rising global liquidity has underpinned international equity markets over the
past six months, and equities so far have ignored the "growth scare" that has
affected most bond markets in 1996. Low interest rates in Europe and Japan and
a growing money supply, plus signs of economic recovery and accelerating
corporate earnings in those areas, have reinforced the positive message coming
from the U.S. equity market. Investors in these markets believe that the same
trends are at work as in the United States, but that the international markets
are in an earlier phase of their cycle. For the six months ended June 30,
1996, the U.S. stock market, as measured by the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
performance, returned 10.09%.
U.S. Outlook
Real (inflation-adjusted) economic growth in the first quarter of 1996 was
2.3% on an annualized basis, and it appears that second-quarter growth could
be even stronger. Thus, real growth in gross domestic product has started the
year at a rate exceeding our expectations. While we continue to believe that
growth from quarter to quarter will be uneven, it is now our expectation that
growth for all of 1996 could exceed 2.5%. Although individual consumers appear
to be carrying an excessive debt load, the consumer sector itself, which
represents two-thirds of the economy, continues to be impressive as the auto
and housing markets remain resilient. Consumer spending has also been
positively impacted by widespread job growth. At the same time, however, the
economies of Europe and Japan continue to be in the doldrums, weakening U.S.
export markets while subduing the capital spending plans of American
corporations. Finally, due to the pickup in economic activity and increasing
job growth, it appears that inflation may accelerate slightly this year, and
the Federal Reserve Board is expected to continue its diligent anti-
inflationary stance.
Global Outlook
The first half of 1996 has seen a continuation of the positive performance of
global equity markets exhibited in 1995. Positive local currency returns were
generated throughout the world. The Morgan Stanley Capital International
(MSCI) Europe Index was up 10.4%, with returns ranging from 2.6% in the United
Kingdom to 20.9% in Spain; the MSCI Pacific Index was up 7.5%, with returns
ranging from -2.2% in New Zealand to 14.3% in Malaysia. The MSCI indices are
unmanaged, market-capitalization-weighted total return indices of global stock
market performance. Meanwhile, the S&P 500 gained 10.1%, and the IFC
(International Finance Corporation) Global Composite Index, a market-
capitalization-weighted index comprising the most active stocks of emerging
markets (as defined by the World Bank), rose 13.5%. The only major negative
was the strong U.S. dollar, which gained 6% against the Japanese yen and the
German mark and ate into dollar-based returns. We believe that the equity
markets will continue to be fundamentally driven, although the economic
outlook is uncertain, with the strength of the U.S. economy unclear, Japan
starting to show more meaningful signs of recovery, and Europe's recovery
still in its early stages. Lower interest rates, particularly in Europe and
Japan, have helped support strong equity markets. While we believe that
interest rates are unlikely to fall further, a subdued global inflation
outlook could mean that rates rise little from current levels, which should
help support current equity market valuations. Therefore, for the remainder of
1996, we believe corporate earnings growth will be the key to further stock
market gains. It is not possible to invest in an index.
Bond Markets
Persistent signs of economic weakness led to decreases in short-term interest
rates by the Federal Reserve in late 1995 and early 1996. However, should
signs of economic growth and, particularly, of higher inflation continue, we
would expect the Fed to maintain its anti-inflationary stance. In the
beginning of the year, bond markets were trading in a narrow range, as
investors shifted between concern about the lack of a budget resolution in
Washington and hopes that sluggish economic reports and low inflation might
lead to lower interest rates. Later, fixed-income markets began reacting to
conflicting signals regarding the strength of the economy with more-volatile
trading patterns marked by an upward bias in interest rates. Interest rates
may move even higher over the coming months, but we believe the current rise
in bond yields is reaching a point where fixed-income markets are becoming
attractively valued.
In world bond markets, the most important development has been the better-
than-expected strength of the U.S. economy. Market expectations for further
interest rate reductions by the Federal Reserve have shifted to concerns of
possible interest rate increases as growth has appeared to be in an above-
trend pattern. Long-term interest rates have also risen, reflecting increased
concerns about inflation and disappointment with the failed attempt to reach
an accord on the federal budget. The rise in U.S. rates has helped push up
rates worldwide, although foreign rates have generally risen less than in the
United States. The overperformance has been most pronounced in some of the
higher-yielding European bond markets.
Overall, the combination of rising interest rates and a stronger dollar
has translated into negative performance for international bonds. Looking
forward, we believe dollar strength may continue until growth in Europe, and
especially in Germany, rebounds, which we expect to occur in the second half
of this year. The outlook for world growth is continuing to improve and,
therefore, some caution regarding bond markets is probably warranted.
Stock Market
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates, and an acceleration of
inflation coupled with an additional slowdown in corporate earnings growth,
could have a negative effect on the stock market. However, to the extent that
some earnings disappointments are taken as a sign that the economy is not
overheating, this may prove beneficial for the longer-term health of the
equity market. We continue to believe that many of the technology-driven
productivity gains that U.S. companies have made in recent years will continue
to enhance corporate America's competitiveness and profitability. Therefore,
while we have some near-term concerns, we remain quite constructive on the
long-term viability of the equity market.
Comments from the portfolio manager of the Series are presented below. We
appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin /s/ Maura Shaughnessy
A. Keith Brodkin Maura Shaughnessy
Chairman and President Portfolio Manager
July 10, 1996
MFS(R) UTILITIES SERIES
Due to the weakness in the bond market over the past several months, utility
stocks have underperformed the broader equity market. During the six months
ended June 30, 1996, the return of the Standard & Poor's Utility Index (the
S&P Utility Index), an unmanaged, market-value weighted, total return index of
all utility stocks in the S&P 500, was 0.05%. Over this same period, the
Series provided a total return of 4.29%.
Currently, the Series remains overweighted in domestic utility stocks
relative to the S&P Utility Index. Although competition is emerging in this
industry, the pace of change is slower than had been anticipated. Along with
solid cost control, we could see relatively strong earnings from the industry
for the next several quarters. The Series is currently emphasizing electric
utilities that are taking steps to improve their competitive position. At this
juncture, we believe the mid-tier quality group offers much higher risk-
adjusted returns than the high-quality segment. Portland General and Cinergy,
two of the Series' largest holdings, fit these criteria.
The Series is underweighted in the regional Bell operating companies
because we believe most of the good news in terms of legislation and growth
prospects are reflected in the prices of the stocks, which have been strong
performers so far this year. Although stocks of the long-distance companies
have been solid performers, the Series remains overweighted in these stocks
because we are seeing accelerating growth in long-distance volume and more
reasonable valuations. Two of the Series' largest holdings, AT&T and MCI
Communications, are in the long-distance telephone sector.
The Series is overweighted in gas utility stocks, focusing on pipeline
companies with expansion opportunities and/or those which are improving the
performance of their non-regulated subsidiaries. Panenergy Corp. and Coastal
Corp. are two such companies.
Currently, approximately 19% of the Series' total net assets are invested
in international utilities. These investments may offer growth opportunities
and more favorable regulatory treatment than domestic utilities. PowerGen, for
example, the Series' largest international holding, offers solid earnings and
dividend growth.
Finally, Real Estate Investment Trusts (REITs) currently comprise about
11% of the Series' total net assets. We believe these investments offer above-
average dividend growth with superior yield potential. In keeping with our
strategy of remaining well diversified, we have invested in storage, health
care, industrial-office, and hotel REITs.
PORTFOLIO MANAGER PROFILE
Maura Shaughnessy joined MFS in 1991 as an equity analyst. A graduate of Colby
College and the Amos Tuck School of Business at Dartmouth College, she was
promoted to Assistant Vice President in 1992 and Vice President in 1993. She
has managed MFS Utilities Series since January 1995. Ms. Shaughnessy is a
Chartered Financial Analyst.
PERFORMANCE SUMMARY
The information below illustrates the performance of MFS Utilities Series
shares.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
1/03/95*-
6 Months 1 Year 6/30/96
- -------------------------------------------------------------------------------
Cumulative Total Return +4.29% +24.06% +39.69%
- -------------------------------------------------------------------------------
Average Annual Total Return -- +24.06% +25.14%
- -------------------------------------------------------------------------------
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in the
product will vary with changes in market conditions, and shares, when
redeemed, may be worth more or less than their original cost. All Series
results reflect the applicable expense subsidy which is explained in the Notes
to Financial Statements. Had the subsidy not been in effect, the results would
have been less favorable. No Series results reflect expenses that would be
imposed by insurance company separate accounts.
*Commencement of investment operations.
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PORTFOLIO OF INVESTMENTS - June 30, 1996
Non-Convertible Bonds - 17.9%
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Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------
U.S. Bonds - 17.3%
Financial Institutions - 0.1%
Liberty Mutual Insurance Co., 8.2s, 2007## $ 5 $ 5,229
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U.S. Treasury Obligations - 16.7%
U.S. Treasury Notes, 5.875s, 1998 $600 $ 597,654
U.S. Treasury Bonds, 6.875s, 2025 5 4,949
U.S. Treasury Bonds, 7.625s, 2025 300 323,250
----------
$ 925,853
- -------------------------------------------------------------------------------
Utilities - Electric - 0.4%
Arkansas Power & Light Co., 8.75s, 2026 $ 10 $ 9,993
Connecticut Light & Power Co., 7.875s, 2001 5 5,023
Louisiana Power & Light, 8.75s, 2026 5 4,825
System Energy Resources, 7.38s, 2000 5 4,899
----------
$ 24,740
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Utilities - Gas - 0.1%
NGC Corp., 6.75s, 2005 $ 5 $ 4,766
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Total U.S. Bonds $ 960,588
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Foreign Bonds - 0.6%
Canada - 0.2%
Fairfax Financial Holdings, 8.3s, 2026
(Financial Institutions) $ 5 $ 4,934
Manufacturers Life Insurance, 7.875s, 2005
(Financial Institutions)## 5 5,048
----------
$ 9,982
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Chile - 0.4%
Empresa Electric Del Norts, 7.75s, 2006
(Utilities - Electric)## $ 20 $ 19,839
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Total Foreign Bonds $ 29,821
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Total Non-Convertible Bonds (Identified Cost, $1,033,948) $ 990,409
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Stocks - 77.9%
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Shares
- -------------------------------------------------------------------------------
U.S. Stocks - 58.4%
Consumer Goods and Services - 1.3%
Philip Morris Cos., Inc. 700 $ 72,800
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Real Estate Investment Trusts - 11.1%
FelCor Suite Hotels, Inc. 1,300 $ 39,650
First Industrial Realty Trust, Inc. 2,500 58,750
Hospitality Properties Trust 3,300 88,275
National Health Investors, Inc. 2,250 73,687
Oasis Residential, Inc. 1,500 32,813
Public Storage, Inc. 4,000 82,500
Reckson Associates Realty Corp. 1,900 62,700
Storage Trust Realty 3,400 69,700
TriNet Corporate Realty Trust, Inc. 1,900 55,100
Winston Hotels, Inc. 4,300 49,987
----------
$ 613,162
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Utilities - Electric - 20.3%
Allegheny Power System, Inc. 1,900 $ 58,663
CMS Energy Corp. 3,550 109,606
Cinergy Corp. 3,000 96,000
Entergy Corp. 2,600 73,775
FPL Group, Inc. 2,100 96,600
Houston Industries, Inc. 2,700 66,487
Illinova Corp. 5,500 158,125
NIPSCO Industries, Inc. 2,000 80,500
PECO Energy Co. 2,800 72,787
Pinnacle West Capital Corp. 2,400 72,900
Portland General Corp. 5,200 163,475
Sierra Pacific Resources 1,000 25,412
Texas Utilities Co. 1,100 47,025
----------
$1,121,355
- -------------------------------------------------------------------------------
Utilities - Gas - 12.3%
Coastal Corp. 3,700 $ 154,475
Columbia Gas System, Inc. 1,500 78,188
El Paso Natural Gas Co. 1,200 46,200
MCN Corp. 1,100 26,812
Noble Affiliates, Inc. 1,000 37,750
PanEnergy Corp. 4,500 147,937
Union Pacific Resource Group, Inc. 1,200 32,100
Westcoast Energy, Inc. 5,020 75,300
Williams Cos., Inc. 1,700 84,150
----------
$ 682,912
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Utilities - Telephone - 13.4%
AT&T Corp. 2,000 $ 124,000
Ameritech Corp. 1,500 89,063
Bell Atlantic Corp. 1,000 63,750
BellSouth Corp. 1,600 67,800
Frontier Corp. 1,000 30,625
GTE Corp. 2,400 107,400
MCI Communications Corp. 4,600 117,875
McLeod, Inc. 900 21,600
SBC Communications, Inc. 1,200 59,100
Telephone & Data Systems, Inc. 500 22,500
Teleport Communications Group, Inc., "A"* 2,100 40,313
----------
$ 744,026
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Total U.S. Stocks $3,234,255
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Foreign Stocks - 19.5%
Argentina - 1.5%
Central Costenera, ADR (Utilities -
Electric)## 1,600 $ 59,925
Telefonica de Argentina, ADR (Utilities -
Telephone) 800 23,700
----------
$ 83,625
- -------------------------------------------------------------------------------
Brazil - 0.4%
Telecomunicacoes Brasileiras S.A.
(Utilities - Telephone) 300 $ 20,887
- -------------------------------------------------------------------------------
Canada - 0.5%
TransCanada Pipelines Ltd. (Utilities -
Gas) 2,000 $ 29,500
- -------------------------------------------------------------------------------
Chile - 4.3%
Chilectra S.A., ADR (Utilities - Electric)* 1,700 $ 93,539
Chilgener S.A., ADR (Utilities - Electric) 3,300 79,200
Empresa Nacional de Electricidad, ADR
(Utilities - Electric) 3,000 64,500
----------
$ 237,239
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Greece - 0.1%
Hellenic Telecommunication Organization
S.A. (Utilities - Telephone) 200 $ 3,315
- -------------------------------------------------------------------------------
Italy - 0.9%
Telecom Italia S.p.A. (Utilities -
Telephone) 37,400 $ 50,987
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Peru - 0.5%
CPT Telefonica del Peru S.A., "B"
(Utilities - Telephone) 14,500 $ 29,213
- -------------------------------------------------------------------------------
Philippines - 0.5%
Pilipino Telegraph & Telephone Corp.
(Utilities - Telephone) 20,000 $ 30,536
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Portugal - 0.8%
Portugal Telecom S.A. (Utilities - Telephone) 1,200 $ 31,384
Portugal Telecom S.A., ADR (Utilities - Telephone) 400 10,500
----------
$ 41,884
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South Korea - 1.1%
Korea Mobile Telecommunications, ADR
(Utilities - Telephone)* 3,500 $ 59,937
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Spain - 1.8%
Empresa Nacional de Electricidad, ADR
(Utilities - Electric) 700 $ 43,838
Iberdrola (Utilities - Electric) 5,700 58,513
----------
$ 102,351
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United Kingdom - 7.1%
East Midlands Electricity PLC (Utilities - Electric) 7,000 $ 56,613
National Power (Utilities - Electric)* 13,900 83,288
PowerGen PLC (Utilities - Electric) 12,800 93,585
PowerGen PLC - 380 P/P (Utilities - Electric) 19,000 97,329
Yorkshire Electricity Group PLC (Utilities
- Electric) 5,500 61,898
----------
$ 392,713
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Total Foreign Stocks $1,082,187
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Total Stocks (Identified Cost, $4,069,812) $4,316,442
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Foreign Convertible Preferred Stock - 0.2%
- -------------------------------------------------------------------------------
Argentina
Compania Inversiones Telephone, 7% (Utilities
- Telephone)## (Identified Cost, $11,550) 200 $ 11,200
- -------------------------------------------------------------------------------
Short-Term Obligation - 3.6%
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Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/12/96, at
Amortized Cost $200 $ 199,589
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Total Investments (Identified Cost, $5,314,899) $5,517,640
Other Assets, Less Liabilities - 0.4% 24,286
- -------------------------------------------------------------------------------
Net Assets - 100.0% $5,541,926
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*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
June 30, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $5,314,899) $5,517,640
Cash 80,650
Receivable for investments sold 86,893
Receivable for Series shares sold 1,893
Interest and dividends receivable 43,900
Receivable from investment adviser 12,853
Deferred organization expenses 6,461
Other assets 26
----------
Total assets $5,750,316
----------
Liabilities:
Payable for investments purchased $ 126,275
Payable for Series shares reacquired 62,441
Payable to affiliates -
Management fee 340
Shareholder servicing agent fee 30
Accrued expenses and other liabilities 19,304
----------
Total liabilities $ 208,390
----------
Net assets $5,541,926
==========
Net assets consist of:
Paid-in capital $5,127,976
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 202,702
Accumulated undistributed net realized gain on investments
and foreign currency transactions 132,843
Accumulated undistributed net investment income 78,405
----------
Total $5,541,926
==========
Shares of beneficial interest outstanding 422,876
==========
Net asset value, offering price, and redemption price per share
(net assets of $5,541,926 / 422,876 shares of beneficial
interest outstanding) $13.11
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 67,224
Interest 29,864
Foreign taxes withheld (3,083)
--------
Total investment income $ 94,005
--------
Expenses -
Management fee $ 14,021
Trustees' compensation 1,017
Shareholder servicing agent fee 654
Printing 26,417
Auditing fees 8,442
Custodian fee 1,204
Amortization of organization expenses 916
Legal fees 372
Miscellaneous 496
--------
Total expenses $ 53,539
Preliminary reduction of expenses by investment adviser (34,299)
Fees paid indirectly (545)
--------
Net expenses $ 18,695
--------
Net investment income $ 75,310
--------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $130,590
Foreign currency transactions (618)
--------
Net realized gain on investments and foreign currency
transactions $129,972
--------
Change in unrealized appreciation (depreciation) -
Investments $(33,329)
Translation of assets and liabilities in foreign currencies 39
--------
Net unrealized loss on investments and foreign currency
translation $(33,290)
--------
Net realized and unrealized gain on investments and
foreign currency $ 96,682
--------
Increase in net assets from operations $171,992
========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Six Months Ended Period Ended
June 30, 1996 December 31, 1995*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 75,310 $ 45,685
Net realized gain on investments and
foreign currency transactions 129,972 103,820
Net unrealized gain (loss) on
investments and foreign currency
translation (33,290) 235,992
----------- -----------
Increase in net assets from
operations $ 171,992 $ 385,497
----------- -----------
Distributions declared to shareholders -
From net investment income
$ -- $ (42,590)
From net realized gain on
investments and foreign currency
transactions -- (100,949)
----------- -----------
Total distributions declared to
shareholders $ -- $ (143,539)
----------- -----------
Series share (principal) transactions -
Net proceeds from sale of shares $ 4,723,955 $ 3,789,585
Net asset value of shares issued to
shareholders in reinvestment of
distributions -- 143,519
Cost of shares reacquired (1,727,190) (1,810,493)
----------- -----------
Increase in net assets from Series
share transactions $ 2,996,765 $ 2,122,611
----------- -----------
Total increase in net assets $ 3,168,757 $ 2,364,569
Net assets:
At beginning of period 2,373,169 8,600
----------- -----------
At end of period (including
accumulated undistributed net
investment income of $78,405 and
$3,095, respectively) $ 5,541,926 $ 2,373,169
=========== ===========
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
Six Months Ended Period Ended
June 30, 1996 December 31, 1995*
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.57 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.26 $ 0.39
Net realized and unrealized gain on
investments and foreign currency
transactions 0.28 3.00
------ ------
Total from investment operations $ 0.54 $ 3.39
------ ------
Less distributions declared to shareholders -
From net investment income
$ -- $(0.24)
From net realized gain on
investments and foreign currency
transactions -- (0.58)
------ ------
Total distributions declared to
shareholders $ -- $(0.82)
------ ------
Net asset value - end of period $13.11 $12.57
====== ======
Total Return 4.29%++ 33.94%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00%+ 1.00%+
Net investment income 4.03%+ 3.66%+
Portfolio turnover 40% 94%
Average commission rate### $0.0373 --
Net assets at end of period (000 omitted) $5,542 $2,373
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the
ratios would have been:
Net investment income $ 0.14 $ 0.17
Ratios (to average net assets):
Expenses 2.86%+ 3.08%+
Net investment income 2.16%+ 1.62%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Utilities Series (the Series) is a non-diversified series of MFS Variable
Insurance Trust (the Trust) which is comprised of the following twelve series:
MFS Bond Series, MFS Emerging Growth Series, MFS Growth Series, MFS Growth
with Income Series, MFS High Income Series, MFS Limited Maturity Series, MFS
Money Market Series, MFS Research Series, MFS Strategic Fixed Income Series,
MFS Total Return Series, MFS Utilities Series, and MFS World Governments
Series. The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
The shareholders of each Series of the Trust are separate accounts of
insurance companies which offer variable annuity and/or life insurance
products. As of June 30, 1996, there were 15 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including listed
issues and forward contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there
are no such quotations or valuations are valued at fair value as determined in
good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of operations of the Series.
Forward Foreign Currency Exchange Contracts - The Series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Series will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Series may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Series may
enter into contracts with the intent of changing the relative exposure of the
Series' portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded for financial statement purposes as unrealized until
the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date.
Fees Paid Indirectly - The Series' custodian bank calculates its fee based on
the Series' average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Series with
the custodian and with the dividend disbursing agent. This amount is shown as
a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Series' tax return, and
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. The Series expects to pass through to shareholders foreign
income taxes paid. The election increases the taxable distributions of the
Series by the amount of the foreign taxes paid. An individual shareholder who
itemizes deductions, or a corporate shareholder, will be able to claim an
offsetting deduction or a tax credit (but not both) on their federal income
tax returns. Individuals who do not itemize deductions may claim a foreign tax
credit but not a deduction. The foreign source income is considered passive
income for the purpose of computing the foreign tax credit limitations.
Distributions to shareholders are recorded on the ex-dividend date.
The Series distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.75% of average daily net assets. Under a temporary expense reimbursement
agreement with MFS, MFS has voluntarily agreed to pay the Series' operating
expenses such that the total operating expenses of the Series shall not exceed
1.00% of its average daily net assets. The Series in turn will pay MFS an
expense reimbursement fee not greater than 1.00% of the Series' average daily
net assets. To the extent that the expense reimbursement fee exceeds the
Series' actual expenses, the excess will be applied to amounts paid by MFS in
prior years. At June 30, 1996, the aggregate unreimbursed expenses owed to MFS
by the Series amounted to $59,812, including $34,299 incurred in the current
period.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain of the
officers and Trustees of the Series are officers or directors of MFS and MFS
Service Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the average daily net assets at an effective annual rate of up
to 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $1,073,790 $ 356,281
========== ==========
Investments (non-U.S. government securities) $3,771,094 $1,259,527
========== ==========
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $5,314,899
==========
Gross unrealized appreciation $ 324,251
Gross unrealized depreciation (121,510)
----------
Net unrealized appreciation $ 202,741
==========
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Series shares were as follows:
Period Ended Period Ended
June 30, 1996 December 31, 1995*
----------------------------- ---------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 370,400 $ 4,723,955 322,691 $ 3,789,585
Shares issued to
shareholders in
reinvestment
of distributions -- -- 11,463 143,519
Shares reacquired (136,302) (1,727,190) (146,236) (1,810,493)
-------- ----------- -------- -----------
Net increase 234,098 $ 2,996,765 187,918 $ 2,122,611
======== =========== ======== ===========
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
(6) Line of Credit
The Series entered into an agreement which enables it to participate with
other funds managed by MFS in an unsecured line of credit with a bank which
permits borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Series shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the Series for the period ended
June 30, 1996 was $20.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS
Utilities Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Utilities Series (the Series)
(one of the series constituting MFS Variable Insurance Trust) as of June 30,
1996, the related statement of operations for the six months then ended, and
the statements of changes in net assets and financial highlights for the six
months ended June 30, 1996 and for the period from January 3, 1995
(commencement of investment operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Series'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at June 30, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Utilities
Series at June 30, 1996, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 2, 1996
---------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
VUF-3-8/96/xM
