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[logo] MFS(R) Annual Report for
THE FIRST NAME IN MUTUAL FUNDS Year Ended
December 31, 1995
MFS(R) BOND SERIES
A Series of MFS(R) Variable Insurance Trust
[Picture of two men in front of a window]
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MFS(R) BOND SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
TRUSTEES
A. Keith Brodkin*
Chairman and President
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises
(diversified holding company)
William R. Gutow
Vice Chairman,
Capitol Entertainment
(Blockbuster Video Franchise)
PORTFOLIO MANAGER
Geoffrey L. Kurinsky*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDER SERVICE CENTER
MFS Service Center, Inc.
P.O. Box 1400
Boston, MA 02107-9906
For additional information, contact your financial adviser.
CUSTODIAN
Investors Bank & Trust Company
AUDITORS
Deloitte & Touche LLP
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Dear Contract Owner:
An environment of declining interest rates and a favorable outlook for inflation
helped establish a pattern of positive performance in both fixed-income and
equity markets around the world during the past 12 months. Yields on many
fixed-income securities continued to decline throughout the year, and as bond
prices rose in response to these declines, all of the fixed-income investments
in the Trust experienced positive total returns. At the same time, lower
interest rates and strong corporate earnings reports through most of the year
helped the prices of many stocks to rise over the period, producing strong
returns.
U.S. Outlook
Moderate but sustainable growth was the hallmark of the economic expansion's
fifth year, although some signs of sluggishness were evident late in the year.
Recent retail sales, for example, have been disappointing, in part because of
rising levels of consumer debt. In addition, growth is not expected to get much
help from the manufacturing sector as order flows from manufacturers have
moderated. Export activity, meanwhile, is also expected to remain modest as
continued weakness abroad limits demand for many U.S. goods. However, the
Federal Reserve Board's consistent and, so far, successful efforts to fight
inflation seem to be giving consumers and businesses enough longer-term
confidence to help maintain modest growth in real (adjusted for inflation) gross
domestic product into 1996.
Global Outlook
A pattern of slow to moderate growth and low and controlled inflation remains a
dominant theme in major industrialized countries, including the United States.
While the recent recovery of the dollar against the German mark and the Japanese
yen has added some strength to the economies of Europe and Japan, the outlook is
for sluggish economic growth, in the near term at least. And although moves by
central banks in Germany and Japan to lower interest rates have helped stimulate
domestic demand, many industrial companies in these countries are still
struggling to compete in a global marketplace in which the prices of their
products are less competitively priced. On the positive side, this does mean
little to no inflationary pressure in these countries, and we believe that this,
combined with further reductions in interest rates, could help provide a
foundation for stronger economic growth in the long run. Also, we believe that
many of the cost-cutting measures taken by companies in these countries over the
past few years will ultimately provide earnings leverage when economic growth
improves. Inflation in most overseas economies remains in a downward trend,
providing fixed-income investors with opportunities for relatively attractive
real rates of interest, possibly accompanied by moderate price appreciation.
While the dollar continues to represent a sound store of long-term value, its
relative strength in the near term is being restrained by the persistent U.S.
current-account deficit.
Bond Markets
Given the recent signs of economic weakness, prospects for the Federal Reserve
Board's further decreasing short-term interest rates are good. Long-term rates,
meanwhile, moved noticeably downward in the latter months of 1995 in
anticipation of more modest fourth-quarter growth with continued low inflation.
While there were some increases in commodity prices early in the year, companies
found it difficult to pass these on at the consumer level as they continue to
fight for market share. Additionally, unit labor costs remain under control and
seem to be growing at a pace that is near or below the ongoing inflation rate.
Thus, with long-term U.S. government bonds yielding approximately 6% in an
environment of 2% to 3% inflation, real rates of return in the fixed-income
markets remain relatively attractive.
In world bond markets, slowing economic growth, low inflation, and declining
official interest rates helped result in solid performance during the past 12
months. European governments are engaged in multi-year programs to reduce their
budget deficits and debt levels. These programs are positive for bonds in that
lower government spending tends to reduce inflationary pressures and lower
issuance of government debt reduces supply pressures on the bond market. In the
Japanese market, powerful deflationary forces have supported a drop in yields to
historically low levels. We now feel this process may be drawing to an end,
given a reversal of priorities at the central bank from fighting inflation,
which is now non-existent, to offsetting the downward spiral of deflation. The
high returns of the U.S. bond market, as measured by the Lehman Brothers
Government Bond Index, have been echoed in other U.S. dollar-bloc markets,
including Australia, New Zealand, and Canada, all of which saw positive
performance over the past year according to Salomon Brothers. Currently, the
Australian market offers significantly higher yields than the U.S. market, and,
we believe, represents good value. As long as the outlook for U.S. bonds remains
positive, these related markets could outperform the U.S. market.
Comments from the portfolio manager of this Series are presented on the
following page. We appreciate your support and welcome any questions or comments
you may have.
Respectfully,
/s/ A. Keith Brodkin /s/ Geoffrey L. Kurinsky
A. Keith Brodkin Geoffrey L. Kurinsky
Chairman and President Portfolio Manager
January 12, 1996
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MFS(R) BOND SERIES
The Bond Series commenced investment operations on October 24, 1995, and
provided a total return of +3.02% from that date through December 31, 1995. This
compares to a +3.14% return for the unmanaged Lehman Brothers
Government/Corporate Bond Index.*
Based on our constructive outlook for U.S. interest rates, we have deployed the
initial allocation of assets in the Series into the longer end of the market.
The duration of the Series ended the year at six years, roughly 20% longer than
what is considered a normal interest-rate sensitivity.
In terms of structure, we have been able to deploy 34% of assets into the
investment-grade corporate market and 8% into the high-yield bond market. The
balance is comprised of 41% in U.S. Treasuries and 17% in cash. Our target
structure, which we will continue to work toward, is 50% in investment-grade
corporate bonds, and 15% in the high-yield corporate market, with the remaining
35% being deployed in the U.S. Government mortgage markets. Given our view that
credit quality trends will continue to improve in 1996, we continue to emphasize
holdings in the corporate bond market.
PORTFOLIO MANAGER PROFILE
Geoffrey Kurinsky began his career at MFS in 1987 in the Fixed Income
Department. A graduate of the University of Massachusetts and Boston
University's Graduate School of Management, he was named Assistant Vice
President in 1988, Vice President in 1989 and Senior Vice President in 1993. Mr.
Kurinsky has managed the MFS Bond Series since its inception in October 1995.
PERFORMANCE SUMMARY
The information below illustrates the performance of the MFS Bond Series shares
in comparison to a market indicator.
AGGREGATE TOTAL RETURNS 10/24/95* -
12/31/95
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MFS Bond Series +3.02%
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Lehman Brothers Government/Corporate Bond Index+(1) +3.14%
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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. All Series results do not reflect expenses that would be imposed by
insurance company separate accounts.
* Commencement of investment operations; benchmark comparisons are from
October 31, 1995.
+ The Lehman Brothers Government/Corporate Bond Index is an unmanaged,
market-value weighted index of all debt obligations of the U.S. Treasury and
U.S. Government Agencies (excluding mortgage-backed securities) and of all
publicly issued fixed-rate, non-convertible, investment grade domestic
corporate debt. It is not possible to invest in an index.
(1) Source: Lipper Analytical Services, Inc.
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PORTFOLIO OF INVESTMENTS - December 31, 1995
Bonds - 87.7%
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Principal Amount
Issuer (000 Omitted) Value
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Financial Institutions - 11.5%
Banks and Credit Companies - 4.5%
Bankers Trust N.Y., 7.5s, 2015 $ 10 $ 10,200
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Insurance - 2.5%
Travelers Group, Inc., 7.875s, 2025 $ 5 $ 5,597
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Other - 4.5%
Associates Corp., 6.375s, 2005 $ 10 $ 10,183
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Industrials - 27.1%
Aerospace - 2.5%
Loral Corp., 8.375s, 2024 $ 5 $ 5,742
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Forest & Paper Products - 2.2%
Noranda Forest Inc., 6.875s, 2005 $ 5 $ 5,115
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Oils - 2.2%
Tenneco, Inc., 6.5s, 2005 $ 5 $ 4,974
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Publishing - 2.2%
News America Holdings, Inc., 7.75s, 2045 $ 5 $ 4,987
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Special Services and Products - 4.4%
Fisher Scientific International, 7.125s, 2005 $ 5 $ 4,991
ITT Corp., 6.75s, 2005 5 5,021
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$ 10,012
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Telecommunications - 2.2%
Lenfest Communications, 8.375s, 2005 $ 5 $ 5,019
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Utilities - Electric - 6.8%
Coastal Corp., 7.75s, 2035 $ 10 $ 10,382
Long Island Lighting Co., 8.9s, 2019 5 5,048
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$ 15,430
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Utilities - Gas - 4.6%
Southern Union Co., 7.6s, 2024 $ 10 $ 10,419
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Transportation - 5.3%
Delta Air Lines, Inc., 9.75s, 2021 $ 5 $ 6,169
United Air Lines, Inc., 9.75s, 2021 5 5,998
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$ 12,167
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U.S. Government Obligations - 43.8%
U. S. Treasury Notes, 7.5s, 2002 $ 90 $ 99,787
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Total Bonds (Identified Cost, $195,739) $ 199,632
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Other Assets, Less Liabilities - 12.3% $ 28,303
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Net Assets - 100.0% $ 227,935
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See notes to financial statements
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FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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December 31, 1995
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Assets:
Investments, at value (identified cost, $195,739) $199,632
Cash 36,949
Interest receivable 2,228
Receivable from investment adviser 5,415
Deferred organization expenses 8,851
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Total assets $253,075
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Liabilities:
Payable for investments purchased $ 11,810
Payable to affiliates for management fee 11
Accrued expenses and other liabilities 13,319
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Total liabilities $ 25,140
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Net assets $227,935
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Net assets consist of:
Paid-in capital $223,852
Unrealized appreciation on investments 3,893
Accumulated undistributed net realized gain on investments 190
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Total $227,935
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Shares of beneficial interest outstanding 22,360
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Net asset value, offering price and redemption price per share
(net assets of $227,935 / 22,360 shares
of beneficial interest outstanding) $10.19
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See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statement of Operations
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Period Ended December 31, 1995*
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Net investment income:
Interest income $ 2,423
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Expenses -
Management fee $ 247
Trustees' compensation 508
Shareholder servicing agent fee 14
Auditing fees 10,507
Printing 4,032
Legal fees 2,182
Amortization of organization expenses 337
Custodian fee 10
Miscellaneous 198
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Total expenses $ 18,035
Reduction of expenses by investment adviser (17,623)
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Net expenses $ 412
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Net investment income $ 2,011
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Realized and unrealized gain on investments:
Realized gain on investment transactions
(identified cost basis) $ 643
Change in unrealized appreciation on investments 3,893
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Net realized and unrealized gain on investments $ 4,536
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Increase in net assets from operations $ 6,547
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*For the period from the commencement of investment operations, October 24, 1995
to December 31, 1995.
See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
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Period Ended December 31, 1995*
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Increase (decrease) in net assets:
From operations -
Net investment income $ 2,011
Net realized gain on investments 643
Net unrealized gain on investments 3,893
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Increase in net assets from operations $ 6,547
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Distributions declared to shareholders -
From net investment income $ (2,011)
From net realized gain on investments (453)
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Total distributions declared to shareholders $ (2,464)
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Series share (principal) transactions -
Net proceeds from sale of shares $217,828
Net asset value of shares issued to shareholders
in reinvestment of distributions 2,464
Cost of shares reacquired (5,040)
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Increase in net assets from Series share transactions $215,252
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Total increase in net assets $219,335
Net assets:
At beginning of period 8,600
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At end of period $227,935
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*For the period from the commencement of investment operations, October 24, 1995
to December 31, 1995.
See notes to financial statements
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FINANCIAL STATEMENTS - continued
Financial Highlights
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Period Ended December 31, 1995*
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Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 10.00
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Income from investment operations# -
Net investment incomess. $ 0.09
Net realized and unrealized gain on investments 0.21
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Total from investment operations $ 0.30
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Less distributions declared to shareholders -
From net investment income $ (0.09)
From net realized gain on investments (0.02)
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Total distributions declared to shareholders $ (0.11)
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Net asset value - end of period $ 10.19
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Total return 3.02%++
Ratios (to average net assets)/Supplementary data(S):
Expenses 1.00%+
Net investment income 4.89%+
Portfolio turnover 55%
Net assets at end of period (000 omitted) $ 228
* For the period from the commencement of investment operations, October 24,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(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 loss per share and
the ratios would have been:
Net investment loss $ (0.70)
Ratios (to average net assets):
Expenses 43.85%+
Net investment loss (37.96)%+
See notes to financial statements
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NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Bond Series (the Series) is a 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. The
Series was seeded on or about February 1, 1994, but remained inactive until the
current period. The commencement of investment operations took place on October
24, 1995. As of December 31, 1995 there were five shareholders in the Series.
(2) Significant Accounting Policies
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues 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.
Repurchase Agreements - The Series may enter into repurchase agreements with
institutions that the Series' investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Series requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Series to obtain those securities
in the event of a default under the repurchase agreement. The Series monitors,
on a daily basis, the value of the securities transferred to ensure that the
value, including accrued interest, of the securities under each repurchase
agreement is greater than amounts owed to the Series under each such repurchase
agreement.
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
investment operations of the Series.
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. Interest
payments received in additional securities are recorded on the ex-interest date
in an amount equal to the value of the security on such date.
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. 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 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
0.60% of its average daily net assets. Under a temporary expense reimbursement
agreement with MFS, MFS has voluntarily agreed to limit the operating expenses
of the Series at levels which increase over time. Currently MFS has agreed to
limit the Series' expenses at an effective annual rate of 1.00% of its average
daily net assets. MFS will pay all Series expenses in excess of the current
limit subject to reimbursement by the Series at a later date. To the extent that
actual Series' expenses do not reach the limit, the Series will reimburse MFS
for prior expenses paid by MFS on behalf of the Series such that the Series'
expense ratio does not exceed 1.00% of its average daily net assets. At December
31, 1995, the aggregate unreimbursed expenses owed to MFS by the Series amounted
to $17,623.
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
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U.S. government securities $ 189,984 $ 92,278
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Investments (non-U.S. government securities) $ 109,962 $ 11,929
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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 $ 195,739
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Gross unrealized appreciation $ 3,948
Gross unrealized depreciation (55)
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Net unrealized appreciation $ 3,893
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(5) Shares of Beneficial Interest
The Trust's 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:
<TABLE>
<CAPTION>
Period Ended December 31, 1995* Shares Amount
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<S> <C> <C>
Shares sold 21,762 $217,828
Shares issued to shareholders in reinvestment
of distributions 242 2,464
Shares reacquired (504) (5,040)
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Net increase 21,500 $215,252
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<FN>
*For the period from commencement of investment operations, October 24, 1995 to December 31, 1995.
</TABLE>
(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.
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INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Bond
Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Bond Series (the Series) (one of the series
constituting MFS Variable Insurance Trust) as of December 31, 1995, the related
statements of operations and changes in net assets and financial highlights for
the period from October 24, 1995 (the 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
December 31, 1995 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 Bond Series at
December 31, 1995, the results of its operations, the changes in its net assets
and its financial highlights for the stated period in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 1996
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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.
VFB-2-2/96/1.5M
