<PAGE>
[logo] M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
DECEMBER 31, 1996
MFS(R) TOTAL RETURN SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[Graphic Omitted]
<PAGE>
MFS(R) TOTAL RETURN SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
<TABLE>
<C> <C>
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 Management Company SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 1400
PORTFOLIO MANAGEMENT Boston, MA 02107-9906
David Calabro*
(Head of Portfolio Management Team) For additional information,
contact your financial adviser.
TREASURER
W. Thomas London* CUSTODIAN
Investors Bank & Trust Company
ASSISTANT TREASURER
James O. Yost* AUDITORS
Deloitte & Touche LLP
SECRETARY
Stephen E. Cavan* WORLD WIDE WEB
www.mfs.com
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
Dear Contract Owners:
The pattern of slow but sustainable growth seen in most of the world in 1996
seems likely to continue in 1997. While it looks like U.S. growth in 1997 will
slow modestly relative to 1996, there is evidence that Europe and, to a lesser
degree, Japan are continuing their recoveries from recession. At the same
time, companies in many emerging markets are reporting robust increases in
earnings as these markets benefit from higher-than-average economic growth and
market reforms. This should continue to provide more opportunities for
development and trade.
After more than six years of expansion, the U.S. economy appears headed
toward another year of moderate growth in 1997, although a few signs point to
the possibility of a modest increase in inflation during the year. On the
positive side, the pattern of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the economy and, short of a
major international or domestic crisis, appears to have enough momentum to
remain on track for some time. Recent gains in such important sectors as
housing, automobiles, industrial production, and exports indicate a fair
amount of underlying strength in the economy. However, some reason for caution
can be seen in the continuing high level of consumer debt and the attendant
rise in personal bankruptcies, as well as in the modestly disappointing level
of holiday sales. Furthermore, the ongoing tightness in labor markets, and
price rises in such important sectors as energy, could add some inflationary
pressures to the economy. Given these somewhat conflicting indicators, we
expect real (inflation-adjusted) growth to revolve around 2% in 1997, which
would represent a modest decline from 1996.
We continue to urge U.S. equity investors to lower their expectations for
1997 and to point out that the impressive gains of the past two years are not
sustainable. Just as the slowdown in corporate earnings growth and increases
in interest rates in 1996 raised some near-term concerns, further interest
rate increases and an acceleration of inflation could negatively affect the
stock market in 1997. However, to the extent that some slowdown in earnings
means that the economy is not overheating, this may be beneficial for the
equity market in the long run. We believe 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 reasonably positive about the
long-term viability of the equity market.
In U.S. bond markets, conflicting signals over the strength of the economy
have created near-term volatility. Even comments by Federal Reserve Chairman
Alan Greenspan in late 1996 created some uncertainty over the Federal Reserve
Board's next move. We expect the Fed to maintain its anti-inflationary stance
should signs of more rapid economic growth and, particularly, higher inflation
resurface. While inflationary forces largely remained in check in 1996, the
continued strength in the labor market and rising energy prices mean that a
pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product,
is now less than 2%, which we consider a positive development for the bond
markets. Although interest rates may move higher over the coming months, we
believe that, at current levels, fixed-income markets remain equitably valued.
Internationally, the environment of moderate growth, benign inflation, and
fairly steady interest rates is also providing support for investment markets
and should help support valuation levels in the coming year. Throughout the
world, the key to stock market performance in 1997 will be corporate earnings
growth. While U.S. earnings growth is slowing, but still expected to be fairly
healthy, we anticipate that a number of European countries will see an
acceleration in earnings growth and improved valuations in 1997. Despite this
environment, many European countries trade at discounts to the United States.
In particular, we see opportunities in some of the multinationals, and
businesses with the ability to generate steady earnings growth. In Japan, a
recovery appears to be taking place, but at a very modest rate, with
valuations still at high levels. In the emerging markets, the long-term
economic growth story remains intact and, although selectivity is even more
important in these markets, more companies are benefiting from this growth and
trading at below-average global valuations.
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/David Calabro
A. Keith Brodkin David Calabro
Chairman and President Head of Portfolio Management Team
January 13, 1997
MFS(R) TOTAL RETURN SERIES
For the year ended December 31, 1996, the Series provided a total return of
14.37%. This compares to a 13.01% return for the Balanced Fund Index, as
reported by Lipper Analytical Services, Inc., for the same period. (Lipper is
an independent firm that tracks mutual fund performance.) As a balanced fund,
a large portion of the Series' total assets is invested in both stocks and
bonds. Additionally, the Series purchases preferred stocks and convertible
bonds, which in many cases can provide similar returns to common stocks with
less risk. Over the past year, the Series held about 55% of its assets in
common stocks, preferred stocks, and convertible bonds. This allocation
provided the bulk of the return for the Series as a whole in 1996, as the U.S.
stock market continued its upward 1995 trend, posting spectacular gains as
measured by the Standard and Poor's 500 Composite Index ("S&P 500") which
gained 22.64% over the 12-month period. (The S&P 500 is an unmanaged index of
500 widely held common stocks.) The remainder of the Series was invested in a
blend of corporate bonds and U.S. Treasury bonds, with an overall duration of
five to six years. The fixed-income sector also provided positive returns;
however their magnitude was far less than that of the Series' stock portion.
For example, the securities in the Lehman Brothers Government Corporate Bond
Index were fairly representative of the Series' bond allocation, and this
index gained 2.88% over the period. (The Lehman Brothers Government Corporate
Bond Index is an unmanaged, market-value weighted index of U.S. Treasury and
government agency securities, excluding mortgage-backed securities.)
The Series' stock investment strategy has focused on companies that, in
our view, have earnings prospects or asset values equal to or higher than the
overall market as measured by the S&P 500. Two sectors that we believe fit our
investment criteria are the energy and financial services sectors. Bank stocks
have done particularly well because earnings have risen steadily and an
increase in merger activity has made most banks more valuable. We also favor
the health care sector, where strong earnings and industry consolidation have
improved the outlook for the stocks of many of these companies. Additionally,
we currently favor the aerospace industry, which we believe will benefit from
a cyclical increase in the number of aircraft being built over the next three
years. During the year, we avoided the technology sector because, in our view,
many of these stocks have high growth prospects but also have high valuations,
which means they often carry greater risk. The Series is also underweighted in
consumer companies because of their inability to raise prices as the U.S.
consumer continues to demand more value at lower prices.
Considering present equity valuations, we feel comfortable with our
current asset allocation. However, should the stock market experience a
meaningful correction, we would be looking to increase our stock allocation.
PORTFOLIO MANAGER PROFILES
David M. Calabro, Vice President, heads the MFS Total Return Series team and
manages that portfolio's common stocks. Mr. Calabro has been employed by MFS
since 1992. Geoffrey L. Kurinsky, Senior Vice President, manages the Series'
fixed-income securities and has been employed by MFS since 1987. Judith N.
Lamb, Vice President, has been employed by MFS since 1992 and manages the
Series' convertible securities. Lisa B. Nurme, Vice President, has been
employed by MFS since 1987 and also manages the portfolio's common stocks as
does Maura A. Shaughnessy, Vice President. Ms. Shaughnessy has been employed
by MFS since 1991.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Total
Return Series shares in comparison to various market indicators. Benchmark
comparisons are unmanaged and do not reflect any fees or expenses. You cannot
invest in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from January 1, 1995 to December 31, 1996)
MFS Consumer Lehman Brothers
Total Price Government/
Return Index - Corporate
Date Series U.S. Bond Index
- ---- ------- -------- ---------------
1/95 10000.0 10000.0 10000.0
6/95 11330.0 10187.0 11380.0
12/95 12734.0 10247.0 12225.0
6/96 13399.0 10464.0 11963.0
12/96 14564.0 10615.0 12270.0
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life+
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Total Return Series +14.37% +20.74%
- ----------------------------------------------------------------------------------------------------
Average Balanced Fund** +13.76% +17.21%
- ----------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index++ + 2.88% +10.79%
- ----------------------------------------------------------------------------------------------------
Lipper Balanced Fund Index** +13.01% +18.80%
- ----------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index++ +22.64% +30.04%
- ----------------------------------------------------------------------------------------------------
Consumer Price Index*++ + 3.59% + 3.04%
- ----------------------------------------------------------------------------------------------------
+For the period from the commencement of investment operations, January 3, 1995 to December 31, 1996.
*The Consumer Price Index is a popular measure of change in prices.
**Source: Lipper Analytical Services.
++Source: CDA/Wiesenberger.
</TABLE>
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the product's annual report
for performance that reflects the fees and charges imposed by insurance
company separate accounts.
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Series results reflect any applicable expense subsidies and waivers, without
which the performance results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1996
Non-Convertible Bonds - 34.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Bonds - 32.7%
Airlines - 0.7%
Continental Airlines, Inc., 9.5s, 2001## $ 50 $ 51,000
Continental Airlines, Inc., 9.5s, 2013 25 28,123
Delta Airlines, Inc., 8.5s, 2002 50 52,941
-----------
$ 132,064
- -----------------------------------------------------------------------------
Automotive - 0.1%
Mark IV Industries, Inc., 7.75s, 2006 $ 20 $ 19,650
- -----------------------------------------------------------------------------
Banks and Credit Companies - 0.7%
ABN Amro Bank N.V., 7.3s, 2026 $ 20 $ 19,350
Advanta Corp., 7.47s, 2001 5 5,100
BankAmerica Capital, 8s, 2026 20 20,239
Capital One Bank Co., 6.75s, 2000 25 24,968
Capital One Financial Corp., 7.25s, 2003 50 49,188
MBNA Capital, 8.278s, 2026 20 20,075
-----------
$ 138,920
- -----------------------------------------------------------------------------
Building - 0.3%
USG Corp., 9.25s, 2001 $ 50 $ 53,250
- -----------------------------------------------------------------------------
Business Machines - 0.1%
International Business Machines Corp.,
7.125s, 2066 $ 20 $ 19,325
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.1%
Philip Morris Cos., Inc., 7.65s, 2008 $ 25 $ 25,532
- -----------------------------------------------------------------------------
Entertainment - 0.3%
Time Warner, Inc., 8.375s, 2023 $ 50 $ 50,693
- -----------------------------------------------------------------------------
Financial Institutions - 0.6%
Contifinancial Corp., 8.375s, 2003 $ 20 $ 20,600
Crown, Cork & Seal Finance, 7s, 2006 20 19,830
Hubco, Inc., 8.2s, 2006## 30 31,200
Lehman Brothers Holdings, 7.5s, 2026 10 10,139
Salton Sea Funding Corp., 7.84s, 2010 25 25,137
-----------
$ 106,906
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.1%
RJR Nabisco, Inc., 8.75s, 2004 $ 25 $ 25,231
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Boise Cascade Corp., 9.85s, 2002 $ 25 $ 28,272
Boise Cascade Corp., 7.43s, 2005 50 50,750
-----------
$ 79,022
- -----------------------------------------------------------------------------
Insurance - 0.3%
Nationwide Mutual Insurance Co., 7.5s,
2024## $ 25 $ 23,300
Travelers Capital, 7.75s, 2036 25 24,250
-----------
$ 47,550
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 0.2%
National Data Corp., 5s, 2003 $ 10 $ 10,450
Tenet Healthcare Corp., 8.625s, 2003 20 21,100
-----------
$ 31,550
- -----------------------------------------------------------------------------
Oils - 0.9%
Enserch Exploration, Inc., 7.54s, 2009## $ 20 $ 19,700
Mitchell Energy & Development Corp.,
6.75s, 2004 40 37,356
Oryx Energy Co., 8.375s, 2004 50 51,938
Tosco Corp., 7.625s, 2006 $ 60 61,945
-----------
$ 170,939
- -----------------------------------------------------------------------------
Real Estate Investment Trusts - 0.4%
Loewen Group International, Inc., 7.5s,
2001 $ 55 $ 55,000
Taubman Realty Group, 8s, 2001 25 25,803
-----------
$ 80,803
- -----------------------------------------------------------------------------
Special Products and Services - 0.1%
Stewart Enterprises, 6.7s, 2003 $ 20 $ 19,688
- -----------------------------------------------------------------------------
Stores - 0.1%
Price/Costco, Inc., 7.125s, 2005 $ 20 $ 20,002
- -----------------------------------------------------------------------------
Telecommunications - 1.0%
360 Communications Co., 7.5s, 2006 $ 33 $ 32,733
Tele-Communications, Inc., 7.385s, 2001 140 141,386
Tele-Communications, Inc., 10.125s, 2022 20 21,960
-----------
$ 196,079
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 24.3%
U.S. Treasury Notes, 5.875s, 1998 $ 176 $ 176,083
U.S. Treasury Notes, 6s, 1998 400 401,000
U.S. Treasury Notes, 9.125s, 1999 40 42,744
U.S. Treasury Notes, 8.5s, 2000 260 277,672
U.S. Treasury Notes, 6.5s, 2001 425 429,649
U.S. Treasury Notes, 6.625s, 2001 1,100 1,117,699
U.S. Treasury Notes, 7.5s, 2001 300 315,798
U.S. Treasury Notes, 7.875s, 2004 200 218,250
U.S. Treasury Notes, 6.5s, 2006 165 165,903
U.S. Treasury Notes, 6.875s, 2006 300 309,328
U.S. Treasury Notes, 7s, 2006 45 46,751
U.S. Treasury Bonds, 6.75s, 2026 1,093 1,101,198
U.S. Treasury Bonds, 12s, 2005 60 81,469
-----------
$ 4,683,544
- -----------------------------------------------------------------------------
Utilities - Electric - 1.6%
Cleveland Electric Illuminating, 9.25s,
1999 $ 50 $ 52,198
Coastal Corp., 7.75s, 2035 70 71,265
First PV Funding Corp., 10.3s, 2014 50 53,250
Long Island Lighting Co., 8.9s, 2019 50 51,012
Long Island Lighting Co., 9.625s, 2024 25 26,588
Niagra Mohawk Power, 8s, 2004 40 38,427
Texas-New Mexico Power Co., 12.5s, 1999 20 21,727
-----------
$ 314,467
- -----------------------------------------------------------------------------
Utilities - Gas - 0.4%
California Energy Co., 10.25s, 2004 $ 15 $ 15,806
Louis Dreyfus Natural Gas, 9.25s, 2004 20 21,025
NGC Corp., 7.625s, 2026 20 20,375
Ras Laffan Gas, 8.294s, 2014## 20 20,267
-----------
$ 77,473
- -----------------------------------------------------------------------------
Total U.S. Bonds $ 6,292,688
- -----------------------------------------------------------------------------
Foreign Bonds - 1.3%
Australia - 0.1%
Qantas Airways, Ltd., 7.5s, 2003
(Airlines)## $ 25 $ 25,568
- -----------------------------------------------------------------------------
Canada - 0.5%
Canadian Pacific Forest, 9.25s, 2002
(Forest and Paper Products) $ 25 $ 25,399
Gulf Canada Resources Ltd., 8.35s, 2006
(Utilities - Gas) 25 25,844
Husky Oil Ltd., 7.125s, 2006 (Oils) 50 50,250
-----------
$ 101,493
- -----------------------------------------------------------------------------
Chile - 0.3%
Empresa Electric Pehuenche, 7.3s, 2003
(Utilties - Electric) $ 50 $ 50,546
- -----------------------------------------------------------------------------
South Africa - 0.1%
Republic of South Africa, 8.375s, 2006
(Government) $ 20 $ 20,000
- -----------------------------------------------------------------------------
Thailand - 0.3%
Northrop-Grumman Corp., 9.375s, 2024
(Aerospace) $ 20 $ 22,110
Total Access Communications, 8.375s, 2006
(Telecommunications)## 40 40,244
-----------
$ 62,354
- -----------------------------------------------------------------------------
Total Foreign Bonds $ 259,961
- -----------------------------------------------------------------------------
Total Non-Convertible Bonds (Identified Cost, $6,520,507) $ 6,552,649
- -----------------------------------------------------------------------------
Convertible Bonds - 0.6%
- -----------------------------------------------------------------------------
ADT Operations, Inc., 0s, 2010 (Electronics) $ 28 $ 18,165
Time Warner, Inc., 7.45s, 1998
(Entertainment) 70 70,771
Valhi, Inc., 0s, 2007 (Chemicals) 63 28,980
- -----------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $107,839) $ 117,916
- -----------------------------------------------------------------------------
Stocks - 54.2%
- -----------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------
U.S. Stocks - 48.9%
Aerospace - 3.8%
Allied Signal, Inc. 2,680 $ 179,560
General Dynamics Corp. 1,400 98,700
Lockheed-Martin Corp. 700 64,050
Raytheon Co. 2,250 108,281
United Technologies Corp. 4,180 275,880
-----------
$ 726,471
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.6%
VF Corp. 1,730 $ 116,775
- -----------------------------------------------------------------------------
Automotive - 1.0%
Dana Corp. 2,510 $ 81,889
Ford Motor Co. 3,000 95,625
General Motors Corp. 350 19,513
-----------
$ 197,027
- -----------------------------------------------------------------------------
Banks and Credit Companies - 6.1%
Bank of Boston Corp. 1,850 $ 118,862
Bank of New York, Inc. 3,060 103,275
Chase Manhattan Corp. 1,962 175,109
Comerica, Inc. 300 15,713
Crestar Financial Corp. 500 37,187
Fleet Financial Group, Inc. 2,950 147,131
National City Corp. 2,700 121,162
NationsBank Corp. 1,740 170,085
Northern Trust Co. 900 32,625
Norwest Corp. 2,500 108,750
Southern National Corp. 4,150 150,438
-----------
$ 1,180,337
- -----------------------------------------------------------------------------
Business Machines - 1.0%
Digital Equipment Corp.* 2,400 $ 87,300
International Business Machines Corp. 660 99,660
-----------
$ 186,960
- -----------------------------------------------------------------------------
Cellular Telephones - 0.2%
Telephone & Data Systems, Inc. 900 $ 32,625
- -----------------------------------------------------------------------------
Chemicals - 2.9%
Air Products & Chemicals, Inc. 900 $ 62,212
Dexter Corp. 1,400 44,625
Dow Chemical Co. 580 45,457
du Pont (E.I.) de Nemours & Co. 1,420 134,013
Nalco Chemical Co. 1,900 68,638
Praxair, Inc. 1,400 64,575
Rohm & Haas Co. 1,300 106,113
Witco Corp. 1,180 35,990
-----------
$ 561,623
- -----------------------------------------------------------------------------
Conglomerates - 1.2%
Eastern Enterprises 1,700 $ 60,137
Goodrich (B.F.) Co. 4,050 164,025
-----------
$ 224,162
- -----------------------------------------------------------------------------
Consumer Goods and Services - 2.7%
American Brands, Inc. 1,030 $ 51,114
Colgate-Palmolive Co. 1,100 101,475
Olin Corp. 980 36,872
Philip Morris Cos., Inc. 2,210 248,901
Rubbermaid, Inc. 710 16,152
Sherwin-Williams Co. 1,200 67,200
-----------
$ 521,714
- -----------------------------------------------------------------------------
Electrical Equipment - 1.6%
Cooper Industries, Inc. 1,100 $ 46,337
General Electric Co. 2,000 197,750
Honeywell, Inc. 1,010 66,407
-----------
$ 310,494
- -----------------------------------------------------------------------------
Electronics - 0.1%
Analog Devices, Inc. 300 $ 10,162
- -----------------------------------------------------------------------------
Financial Institutions - 1.1%
American Express Co. 1,890 $ 106,785
Associates First Capital Corp.* 200 8,825
Federal Home Loan Mortgage Corp. 960 105,720
-----------
$ 221,330
- -----------------------------------------------------------------------------
Food and Beverage Products - 1.1%
Anheuser-Busch Cos., Inc. 200 $ 8,000
Dimon, Inc. 800 18,500
General Mills, Inc. 1,350 85,556
McCormick & Co., Inc. 1,900 44,769
PepsiCo, Inc. 1,900 55,575
-----------
$ 212,400
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.3%
Weyerhauser Co. 1,300 $ 61,587
- -----------------------------------------------------------------------------
Insurance - 3.5%
Allstate Corp. 2,200 $ 127,325
CIGNA Corp. 1,200 163,950
Chubb Corp. 1,600 86,000
St. Paul Cos., Inc. 1,990 116,664
Torchmark Corp. 2,200 111,100
Travelers Group, Inc. 1,667 75,623
-----------
$ 680,662
- -----------------------------------------------------------------------------
Machinery - 0.8%
Deere & Co., Inc. 3,000 $ 121,875
York International Corp. 580 32,407
-----------
$ 154,282
- -----------------------------------------------------------------------------
Medical and Health Products - 2.0%
American Home Products Corp. 1,940 $ 113,732
Baxter International, Inc. 1,180 48,380
Pharmacia & Upjohn, Inc. 2,900 114,913
Rhone-Poulenc Rorer, Inc. 1,300 101,562
-----------
$ 378,587
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 1.0%
Columbia/HCA Healthcare Corp. 1,800 $ 73,350
St. Jude Medical, Inc.* 530 22,591
United Healthcare Corp. 2,300 103,500
-----------
$ 199,441
- -----------------------------------------------------------------------------
Metals and Minerals - 0.5%
Aluminum Company of America 1,350 $ 86,062
Phelps Dodge Corp. 300 20,250
-----------
$ 106,312
- -----------------------------------------------------------------------------
Oil Services - 0.7%
Schlumberger Ltd. 1,270 $ 126,841
- -----------------------------------------------------------------------------
Oils - 5.2%
Amoco Corp. 1,390 $ 111,895
Atlantic Richfield Co. 810 107,325
Exxon Corp. 1,500 147,000
Mobil Corp. 1,130 138,142
Occidental Petroleum Corp. 3,900 91,163
Sun Co., Inc. 270 6,581
Texaco, Inc. 1,400 137,375
USX-Marathon Group 6,900 164,737
Ultramar Corp. 500 15,813
Union Pacific Resources Group, Inc. 2,600 76,050
-----------
$ 996,081
- -----------------------------------------------------------------------------
Photographic Products - 0.8%
Eastman Kodak Co. 2,030 $ 162,908
- -----------------------------------------------------------------------------
Pollution Control - 0.5%
Browning-Ferris Industries, Inc. 1,500 $ 39,375
WMX Technologies, Inc. 1,600 52,200
-----------
$ 91,575
- -----------------------------------------------------------------------------
Railroads - 1.2%
Burlington Northern-Santa Fe 1,170 $ 101,059
CSX Corp. 1,010 42,672
Illinois Central Corp. 2,950 94,400
-----------
$ 238,131
- -----------------------------------------------------------------------------
Real Estate Investment Trusts - 0.8%
Arden Realty Group, Inc. 500 $ 13,875
Hospitality Properties Trust 2,500 72,500
Meditrust Corp. 1,500 60,000
-----------
$ 146,375
- -----------------------------------------------------------------------------
Special Products and Services - 0.4%
Stanley Works 2,600 $ 70,200
- -----------------------------------------------------------------------------
Stores - 0.9%
May Department Stores Co. 950 $ 44,413
Rite Aid Corp. 400 15,900
Sears, Roebuck & Co. 1,800 83,025
Wal-Mart Stores, Inc. 1,450 33,169
-----------
$ 176,507
- -----------------------------------------------------------------------------
Utilities - Electric - 2.5%
Allegheny Power System, Inc. 900 $ 27,337
CMS Energy Corp. 2,000 67,250
Carolina Power & Light Co. 2,400 87,600
DPL, Inc. 600 14,700
FPL Group, Inc. 2,300 105,800
PECO Energy Co. 800 20,200
Pinnacle West Capital Corp. 1,800 57,150
Portland General Corp. 1,400 58,800
Texas Utilities Co. 950 38,713
-----------
$ 477,550
- -----------------------------------------------------------------------------
Utilities - Gas - 2.1%
Coastal Corp. 1,730 $ 84,554
Pacific Enterprises 500 15,188
PanEnergy Corp. 3,100 139,500
Sonat, Inc. 1,150 59,225
UGI Corp. 2,400 53,700
Williams Cos., Inc. 1,500 56,250
-----------
$ 408,417
- -----------------------------------------------------------------------------
Utilities - Telephone - 2.3%
AT&T Corp. 300 $ 13,050
Ameritech Corp. 820 49,713
BellSouth Corp. 2,500 100,938
GTE Corp. 3,050 138,775
MCI Communications Corp. 4,300 140,556
-----------
$ 443,032
- -----------------------------------------------------------------------------
Total U.S. Stocks $ 9,420,568
- -----------------------------------------------------------------------------
Foreign Stocks - 5.3%
Canada - 0.1%
Canadian National Railway Co. (Railroads)* 500 $ 19,000
- -----------------------------------------------------------------------------
Germany - 0.3%
Henkel KGaA (Chemicals) 1,100 $ 55,268
- -----------------------------------------------------------------------------
Netherlands - 0.9%
Royal Dutch Petroleum Co. (Oils) 1,020 $ 174,165
- -----------------------------------------------------------------------------
New Zealand
Lion Nathan Ltd. (Food and Beverage
Products) 2,100 $ 5,030
- -----------------------------------------------------------------------------
Spain - 0.4%
Repsol S.A., ADR (Oil Services) 2,000 $ 76,250
- -----------------------------------------------------------------------------
Sweden - 0.5%
Astra AB, ADR (Medical and Health
Products) 1,500 $ 73,500
Volvo AB, "B", ADR (Automotive) 590 12,833
-----------
$ 86,333
- -----------------------------------------------------------------------------
Switzerland - 0.9%
Novartis AG (Medical and Health Products)* 148 $ 169,570
- -----------------------------------------------------------------------------
United Kingdom - 2.2%
British Petroleum PLC, ADR (Oils) 1,807 $ 255,465
SmithKline Beecham PLC, ADR (Medical and
Health Products) 2,580 175,440
-----------
$ 430,905
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 1,016,521
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $9,439,235) $10,437,089
- -----------------------------------------------------------------------------
Convertible Preferred Stocks - 2.3%
- -----------------------------------------------------------------------------
American Radio Systems, 7s (Entertainment)## 300 $ 13,650
Case Corp., $4.50 (Agricultural Products) 700 92,925
Enron Corp. (Utilities - Gas) 1,300 31,200
Finova Finance Trust, 5.5s (FinancialInstitutions) 600 31,500
Host Marriott Financial, 6.75s (Restaurants
and Lodging)## 2,000 106,000
Loral Space & Communications, 6s (Aerospace)## 900 50,850
SCI Finance LLC, "A", $3.125 (Medical and
Health Technology and Services) 200 18,825
Salomon, Inc., 6.25s (Utilities - Telephone) 100 6,025
Timet Capital Trust, 6.625s (Metals and Minerals)## 700 38,325
Unocal Corp., 7s (Utilities - Gas) 946 53,708
- -----------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $409,123) $ 443,008
- -----------------------------------------------------------------------------
Short-Term Obligation - 11.6%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Student Loan Marketing Assn., due 1/02/97,
at Amortized Cost $ 2,230 $ 2,229,226
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $18,705,930) $19,779,888
Other Assets, Less Liabilities - (2.7)% (530,116)
- -----------------------------------------------------------------------------
Net Assets -100.0% $19,249,772
- -----------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1996
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $18,705,930) $19,779,888
Cash 10,862
Receivable for Series shares sold 93,834
Interest and dividends receivable 131,774
Receivable from investment adviser 41,944
Deferred organization expenses 5,535
Other assets 429
-----------
Total assets $20,064,266
-----------
Liabilities:
Payable for Series shares reacquired $ 10,444
Payable for investments purchased 754,763
Payable to affiliate for management fee 1,167
Accrued expenses and other liabilities 48,120
-----------
Total liabilities $ 814,494
-----------
Net assets $19,249,772
-----------
Net assets consist of:
Paid-in capital $18,170,528
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 1,073,950
Accumulated undistributed net realized gain on investments
and foreign currency transactions 5,068
Accumulated undistributed net investment income 226
-----------
Total $19,249,772
===========
Shares of beneficial interest outstanding 1,404,528
=========
Net asset value per share
(net assets of $19,249,772 / 1,404,528 shares of beneficial
interest outstanding) $13.71
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Operations
- ------------------------------------------------------------------------------------------
Year Ended December 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 247,023
Dividends 125,576
Foreign taxes withheld (1,297)
----------
Total investment income $ 371,302
----------
Expenses -
Management fee $ 60,979
Trustees' compensation 2,033
Shareholder servicing agent fee 2,799
Auditing fees 59,356
Printing 29,675
Custodian fee 5,117
Amortization of organization expenses 1,842
Legal fees 1,214
Miscellaneous 6,672
----------
Total expenses $ 169,687
Fees paid indirectly (662)
Reduction of expenses by investment adviser (87,721)
----------
Net expenses $ 81,304
----------
Net investment income $ 289,998
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 124,940
Foreign currency transactions 226
----------
Net realized gain on investments and foreign currency transactions $ 125,166
----------
Change in unrealized appreciation (depreciation) -
Investments $ 823,214
Translation of assets and liabilities in foreign currencies (8)
----------
Net unrealized gain on investments and foreign currency translation $ 823,206
----------
Net realized and unrealized gain on investments and foreign currency $ 948,372
----------
Increase in net assets from operations $1,238,370
==========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
<S> <C> <C>
From operations -
Net investment income $ 289,998 $ 55,290
Net realized gain on investments and foreign currency transactions 125,166 50,806
Net unrealized gain on investments and foreign currency translation 823,206 250,744
----------- ----------
Increase in net assets from operations $ 1,238,370 $ 356,840
----------- ----------
Distributions declared to shareholders -
From net investment income $ (287,177) $ (54,152)
From net realized gain on investments and foreign currency transactions (124,941) (50,806)
In excess of net realized gain on investments and foreign currency
transactions -- (14)
----------- ----------
Total distributions declared to shareholders $ (412,118) $ (104,972)
----------- ----------
Series share (principal) transactions -
Net proceeds from sale of shares $17,739,649 $3,794,238
Net asset value of shares issued to shareholders in reinvestment of
distributions 412,118 104,970
Cost of shares reacquired (2,525,317) (1,362,606)
----------- ----------
Increase in net assets from Series share transactions $15,626,450 $2,536,602
----------- ----------
Total increase in net assets $16,452,702 $2,788,470
Net assets:
At beginning of period 2,797,070 8,600
----------- ----------
At end of period (including accumulated undistributed net investment
income of $226 and $1,138, respectively) $19,249,772 $2,797,070
=========== ==========
*For the period from the commencement of investment operations, January 3, 1995 to December 31, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- ---------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $12.25 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.46 $ 0.41
Net realized and unrealized gain on investments and foreign currency
transactions 1.30 2.32
------ ------
Total from investment operations $ 1.76 $ 2.73
------ ------
Less distributions declared to shareholders -
From net investment income $(0.21) $(0.25)
From net realized gain on investments and foreign currency
transactions (0.09) (0.23)
------ ------
Total distributions declared to shareholders $(0.30) $(0.48)
------ ------
Net asset value - end of period $13.71 $12.25
====== ======
Total return 14.37% 27.34%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income 3.59% 3.83%+
Portfolio turnover 76% 16%
Average commission rate### $0.0485 --
Net assets at end of period (000 omitted) $19,250 $2,797
*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 $ 0.32 $ 0.22
Ratios (to average net assets):
Expenses 2.10% 2.49%+
Net investment income 2.49% 2.09%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Total Return 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 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, MFS Value 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 December 31, 1996 there were 20 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, 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 result 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 Series operations.
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. During the year ended December 31, 1996, $1,124 was
reclassified from paid-in capital and $226 and $898 were reclassified to
accumulated undistributed net investment income and accumulated undistributed
net realized gain on investments and foreign currency transactions,
respectively, due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value
per share. At December 31, 1996, accumulated undistributed net investment
income and accumulated undistributed net realized gain on investments and
foreign currency transactions under book accounting were different from tax
accounting due to temporary differences in accounting for tax spillbacks and
wash sales.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets. Under a temporary expense limitation agreement
with MFS, MFS has voluntarily agreed to pay all of the Series' operating
expenses, exclusive of management fees, which exceed 0.25% of the Series'
average daily net assets. The Series in turn will pay MFS an expense
reimbursement fee not greater than 0.25% 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 December 31, 1996, the aggregate unreimbursed expenses owed to MFS
by the Series amounted to $112,813, including $87,721 incurred in the current
year.
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 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 $ 6,444,830 $2,530,636
=========== ==========
Investments (non-U.S. government securities) $13,196,056 $2,933,540
=========== ==========
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 $18,705,930
===========
Gross unrealized appreciation $ 1,159,676
Gross unrealized depreciation (85,718)
-----------
Net unrealized appreciation $ 1,073,958
===========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Series shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1996 December 31, 1995*
-------------------------------- ------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,341,544 $17,739,649 333,436 $3,794,238
Shares issued to shareholders in
reinvestment of distributions 29,841 412,118 8,611 104,970
Shares reacquired (195,111) (2,525,317) (114,653) (1,362,606)
--------- ----------- ------- ----------
Net increase 1,176,274 $15,626,450 227,394 $2,536,602
========= =========== ======= ==========
*For the period from the commencement of investment operations, January 3, 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. The commitment fee allocated to the Series for the year ended
December 31, 1996 was $99.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Total
Return Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Total Return Series (the
Series) (one of the series constituting the MFS Variable Insurance Trust) as
of December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets and financial highlights for
the year then ended and for the period from January 3, 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, 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 Total Return
Series at December 31, 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
February 7, 1997
---------------------------------------------
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>
VTR 2/97 2.5M
