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[logo] M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
DECEMBER 31, 1996
MFS(R) MONEY MARKET SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[graphic omitted]
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MFS(R) MONEY MARKET SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
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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 MANAGER Boston, MA 02107-9906
Geoffrey L. Kurinsky*
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*
WORLD WIDE WEB
ASSISTANT SECRETARY www.mfs.com
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
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Dear Contract Owner:
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 Board
Chairman Alan Greenspan in late 1996 created some uncertainty over the Federal
Reserve's next move. However, 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/Geoffrey L. Kurinsky
A. Keith Brodkin Geoffrey L. Kurinsky
Chairman and President Portfolio Manager
January 13, 1997
MFS MONEY MARKET SERIES
The Series seeks as high a level of current income as is considered consistent
with the preservation of capital and liquidity. The Series endeavors to achieve
this by investing in short-term money market securities issued or guaranteed by
the U.S. Treasury or its agencies, or instrumentalities of the U.S. government,
as well as the highest quality corporate issues in order to minimize credit
risk. As of December 31, 1996, the portfolio had assets of approximately
$632,000, which were invested in seven different government issues with an
average maturity of 44 days.
We anticipate short-term interest rates to remain flat over the next several
months.
The Series is neither insured nor guaranteed by the U.S. government, and
there can be no assurance that it will be able to maintain a stable net asset
value of $1.00 per share.
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Kurinsky is Senior Vice President of Massachusetts Financial
Services (MFS) and has managed MFS Money Market Series since 1995. He joined
MFS as Portfolio Manager in the Fixed Income Department in 1987 and was named
Vice President in 1990 and Senior Vice President in 1993. Mr. Kurinsky is a
graduate of the University of Massachusetts and holds an M.B.A. in Finance
from Boston University.
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Money Market
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.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life+
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MFS Money Market Series +4.55% +4.47%
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Consumer Price Index++* +3.56% +3.04%
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+For the period from the commencement of investment operations, January 3, 1995
to December 31, 1996.
++Source: CDA/Wiesenberger.
*The Consumer Price Index is a popular measure of change in prices.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administrative fees. Please refer to the product's annual report for
performance that reflects the fees and charges imposed by insurance company
separate accounts.
Results are based on past performance which 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.
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PORTFOLIO OF INVESTMENTS - December 31, 1996
U.S. Government and Agency Obligations - 100.1%
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Principal Amount
Issuer (000 Omitted) Value
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Federal Farm Credit Bank, due 1/22/97 - 11/17/97 $110 $108,000
Federal Home Loan Bank, due 1/02/97 - 2/14/97 96 95,640
Federal Home Loan Mortgage Corp., due 1/02/97 - 2/13/97 130 129,474
Federal National Mortgage Assn., due 1/07/97 - 6/16/97 131 129,962
Student Loan Marketing Assn., due 1/02/97 110 109,980
Tennessee Valley Authority, due 1/06/97 - 1/28/97 30 29,946
U.S. Treasury Bills, due 1/09/97 30 29,970
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Total Investments, at Amortized Cost $632,972
Other Assets, Less Liabilities - (0.1)% (354)
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Net Assets - 100.0% $632,618
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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, 1996
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Assets:
Investments, at amortized cost and value $632,972
Cash 1,689
Receivable from investment adviser 16,635
Deferred organization expenses 5,535
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Total assets $656,831
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Liabilities:
Distributions payable $ 1,875
Payable to affiliates for management fee 26
Accrued expenses and other liabilities 22,312
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Total liabilities $ 24,213
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Net assets (represented by paid-in capital) $632,618
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Shares of beneficial interest outstanding 632,618
=======
Net asset value per share
(net assets of $632,618 / 632,618 shares of beneficial
interest outstanding) $1.00
=====
See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statement of Operations
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Year Ended December 31, 1996
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Net investment income:
Interest income $ 8,853
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Expenses -
Management fee $ 858
Trustees' compensation 2,033
Shareholder servicing agent fee 59
Auditing fees 28,106
Printing 12,858
Amortization of organization expenses 1,842
Legal fees 1,146
Custodian fee 341
Miscellaneous 662
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Total expenses $47,905
Fees paid indirectly (43)
Reduction of expenses by investment adviser (46,831)
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Net expenses $ 1,031
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Net investment income $ 7,822
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See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
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Year Ended Period Ended
December 31, 1996 December 31, 1995*
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Increase (decrease) in net assets:
From operations -
Net investment income, declared as
distributions to shareholders $ 7,822 $ 5,423
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Series share (principal) transactions at net asset
value of $1.00 per share -
Net proceeds from sale of shares $643,286 $290,633
Net asset value of shares issued to
shareholders in reinvestment of
distributions 5,947 5,321
Cost of shares reacquired (196,749) (124,420)
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Total increase in net assets $452,484 $171,534
Net assets:
At beginning of period 180,134 8,600
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At end of period $632,618 $180,134
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*For the period from the commencement of investment operations, January 3, 1995
to December 31, 1995.
See notes to financial statements
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FINANCIAL STATEMENTS - continued
Financial Highlights
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Year Ended Period Ended
December 31, 1996 December 31, 1995*
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Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 1.00 $ 1.00
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Income from investment operations# -
Net investment income(S) $ 0.04 $ 0.04
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Less distributions declared to shareholders
from net investment income (0.04) (0.04)
------ ------
Net asset value - end of period $ 1.00 $ 1.00
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Total return 4.55% 4.37%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.60% 0.60%+
Net investment income 4.53% 4.54%+
Net assets at end of period (000 omitted) $ 633 $ 180
*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.
(S)The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 0.60% 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 $(0.21) $(0.14)
Ratios (to average net assets):
Expenses 27.74% 21.54%+
Net investment loss (22.61)% (16.37)%+
See notes to financial statements
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NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Money Market Series (the Series) is a diversified series of MFS Variable
Insurance Trust (the Trust) which is comprised of the following 12 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 eight 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.
Investment Valuation - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value. The
Trust's use of amortized cost is subject to the Trust's compliance with certain
conditions as specified under Rule 2a-7 of the Investment Company Act of 1940.
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.
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.
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 annual rate of 0.50% 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 0.10% of the Series' average daily
net assets. The Series in turn will pay MFS an expense reimbursement fee not
greater than 0.10% 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 $71,807,
including $46,831 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 of money market investments, exclusive of
securities subject to repurchase agreements, consisted solely of U.S. government
securities and aggregated $5,046,308 and $4,591,485, respectively.
(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).
(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 $2.
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INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Money
Market Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Money Market 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. 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 Money Market
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
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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.
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