<PAGE>
[Logo] M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
DECEMBER 31, 1996
MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[Graphic Omitted]
<PAGE>
MFS(R) UTILITIES SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services
Chairman and President Company
500 Boylston Street
Nelson J. Darling, Jr. Boston, MA 02116-3741
Trustee, Eastern Enterprises
(diversified holding company) DISTRIBUTOR
MFS Fund Distributors, Inc.
William R. Gutow 500 Boylston Street
Vice Chairman, Boston, MA 02116-3741
Capitol Entertainment Management Company
(Blockbuster Video Franchise) SHAREHOLDER SERVICE CENTER
MFS Service Center, Inc.
PORTFOLIO MANAGER P.O. Box 1400
Maura Shaughnessy* Boston, MA 02107-9906
TREASURER For additional information,
W. Thomas London* contact your financial adviser.
ASSISTANT TREASURER CUSTODIAN
James O. Yost* Investors Bank & Trust Company
SECRETARY AUDITORS
Stephen E. Cavan* Deloitte & Touche LLP
ASSISTANT SECRETARY WORLD WIDE WEB
James R. Bordewick, Jr.* www.mfs.com
*Affiliated with the Investment Adviser
<PAGE>
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, which 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 rise 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 levels 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. Also, 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. 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/ Maura Shaughnessy
A. Keith Brodkin Maura Shaughnessy
Chairman and President Portfolio Manager
January 9, 1997
MFS UTILITIES SERIES
For the 12 months ended December 31, 1996, the Series provided a total return of
18.51%, which compares to a 3.12% return for the Standard & Poor's Utility Index
(the Utility Index), an unmanaged, market-value weighted, total-return index of
all utility stocks in the Standard & Poor's 500 Composite Index (the S&P 500).
The Series' performance benefited from its overweighting in natural gas
stocks, which were terrific performers in 1996. Also, two of the Series' larger
holdings, Portland General and MCI Communications, were bought out by Enron and
British Telephone, respectively. Electric utility stocks comprise a large
portion of the Series' equity position, and although electric utilities are
facing a period of deregulation, the pace of change is slower than had been
anticipated, which is favorable for these stocks, while certain companies are
preparing themselves to thrive in the new environment. Meanwhile, natural gas
companies are benefiting from stronger-than-expected earnings growth due to
robust earnings from nonregulated businesses.
Generally, the Series' assets are more interest rate sensitive than the
overall market, and while the weak bond market in the first half of the Series'
fiscal year hurt utility stocks, its recent strengthening has helped them.
The Series was underweighted in telecommunications stocks for the entire
year. The passage of the federal Telecommunications Act placed an overhang of
uncertainty on these stocks, and we expect it will be several years before we
know who the winners and losers are from this legislation. For the large-
capitalization stocks in this sector, we expect earnings per share growth to
decline.
About 20% of the Series is invested internationally. Typically, while they
may carry more risk, international markets can offer much higher growth and, at
times, a more constructive regulatory environment than the United States.
PowerGen, a U.K. electric generating company, is one of the cheapest utilities
in the world based on growth relative to its earnings and cash flow generation.
Telefonica del Peru, meanwhile, is enjoying an excellent combination of robust
growth and rational regulation.
Another 10% of assets is invested in REITs (real estate investment trusts),
which we believe offer higher yields and stronger dividend growth than the
typical utility. Our strategy is to hold a diversified group including health
care, self-storage, hotel, apartment, office, and industrial REITs.
PORTFOLIO MANAGER'S PROFILE
Maura Shaughnessy joined MFS in 1991 as an equity analyst. A graduate of Colby
College and the Amos Tuck School of Business at Dartmouth College, she was
promoted to Assistant Vice President in 1992 and Vice President in 1993. She has
managed MFS Utilities Series since January 1995. Ms. Shaughnessy is a Chartered
Financial Analyst.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
The MFS Utilities Series has designated $139,948.00 as a long-term capital gain.
DIVIDENDS-RECEIVED DEDUCTION
For the year ended December 31, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations, came to
17.55%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Utilities
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 Utilities Series Consumer Price Index - U.S. S&P Utility Index
1/95 10000.0 10000.0 10000.0
6/95 11260.0 10187.0 11484.0
12/95 13394.0 10247.0 14113.0
6/96 13969.0 10464.0 14119.0
12/96 15873.0 10615.0 14553.0
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life(+)
- ------------------------------------------------------------------------------
MFS Utilities Series +18.51% +26.07%
- ------------------------------------------------------------------------------
Standard & Poor's Utility Index** + 3.12% +20.64%
- ------------------------------------------------------------------------------
Consumer Price Index* + 3.59% + 3.04%
- ------------------------------------------------------------------------------
+ For the period from the commencement of investment operations, January 3,
1995 to December 31, 1996.
** Source: Lipper Analytical Services.
* 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 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 - 16.4%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
U.S. Bonds - 16.1%
Financial Institutions - 0.2%
Boise Cascade Corp., 7.43s, 2005 $ 15 $ 15,225
Equitable Life Assurance, 7.7s, 2015 3 2,999
Liberty Mutual Insurance Co., 8.2s, 2007## 5 5,310
----------
$ 23,534
- -------------------------------------------------------------------------------
Real Estate Investment Trust - 0.3%
Loewen Group International, Inc., 7.75s, 2001## $ 25 $ 25,438
- -------------------------------------------------------------------------------
Telecommunications - 0.3%
Continental Cablevision, 8.3s, 2006 $ 25 $ 26,632
- -------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.5%
U.S. Treasury Notes, 5.875s, 1998 $ 271 $ 271,127
U.S. Treasury Notes, 6.5s, 2006 40 40,218
U.S. Treasury Notes, 7s, 2006 255 264,922
U.S. Treasury Bonds, 7.625s, 2025 300 333,234
U.S. Treasury Bonds, 6.75s, 2026 5 5,037
----------
$ 914,538
- -------------------------------------------------------------------------------
Utilities - Electric - 1.8%
Arkansas Power & Light Co., 8.75s, 2026 $ 10 $ 10,302
First PV Funding Corp., 10.3s, 2014 25 26,625
First PV Funding Corp., 10.15s, 2016 25 26,562
Long Island Lighting Co., 9s, 2022 25 26,313
Louisiana Power & Light Co., 8.75s, 2026 5 5,056
Montana Power Co., 7.875s, 2026 25 25,219
System Energy Resources, 7.38s, 2000 50 49,852
----------
$ 169,929
- -------------------------------------------------------------------------------
Utilities - Gas - 3.7%
Coastal Corp., 7.75s, 2035 $ 50 $ 49,625
Husky Oil Ltd., 7.125s, 2006 100 100,500
Louis Dreyfus Natural Gas Corp., 9.25s, 2004 25 26,281
Oryx Energy Co., 10s, 2001 25 27,442
Tosco Corp., 7.625s, 2006 125 129,053
Transcontinental Gas, 7.25s, 2026 25 24,500
----------
$ 357,401
- -------------------------------------------------------------------------------
Other - 0.3%
Delta Air Lines Inc., 8.5s, 2002 $ 25 $ 26,470
- -------------------------------------------------------------------------------
Total U.S. Bonds $1,543,942
- -------------------------------------------------------------------------------
Foreign Bonds - 0.3%
Canada - 0.1%
Fairfax Financial Holdings, 8.3s, 2026
(Financial Institutions) $ 5 $ 5,208
Enersis S A, 6.9s, 2006 (Computer Services) 5 4,869
----------
$ 10,077
- -------------------------------------------------------------------------------
Chile - 0.2%
Empresa Electric Del Norts, 7.75s, 2006
(Utilities - Electric)## $ 20 $ 20,163
- -------------------------------------------------------------------------------
Total Foreign Bonds $ 30,240
- -------------------------------------------------------------------------------
Total Non-Convertible Bonds (Identified Cost, $1,602,900) $1,574,182
- -------------------------------------------------------------------------------
Stocks - 78.8%
- -------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------
U.S. Stocks - 61.3%
Consumer Goods and Services - 1.3%
Philip Morris Cos., Inc. 1,100 $ 123,888
- -------------------------------------------------------------------------------
Real Estate Investment Trusts - 11.4%
American General Hospitality Corp. 5,700 $ 135,375
Boykin Lodging Co. 3,600 86,400
Brandywine Realty Trust 5,600 109,200
First Industrial Realty Trust, Inc. 1,100 33,413
Hospitality Properties Trust 3,900 113,100
Innkeepers USA Trust 6,400 88,800
National Health Investors, Inc. 1,850 70,069
Oasis Residential, Inc. 2,900 65,975
Prentiss Properties Trust 3,000 75,000
Shurgard Storage Centers, Inc. 800 23,700
Sovran Self Storage, Inc. 2,000 62,500
Storage Trust Realty 5,400 145,800
Winston Hotels, Inc. 5,800 79,025
----------
$1,088,357
- -------------------------------------------------------------------------------
Utilities - Electric - 23.2%
Allegheny Power Systems, Inc. 1,700 $ 51,638
Boston Edison Co. 4,400 118,250
CMS Energy Corp. 6,950 233,694
Cinergy Corp. 2,800 93,450
Edison International 5,100 101,363
FPL Group, Inc. 1,100 50,600
GPU, Inc. 4,500 151,313
Illinova Corp. 5,500 151,250
NIPSCO Industries, Inc. 2,900 114,913
Pacific Gas & Electric Co. 4,500 94,500
Pinnacle West Capital Corp. 2,500 79,375
Portland General Corp. 3,200 134,400
Public Service Company of Colorado 2,300 89,413
Public Service Company of New Mexico 12,300 241,387
Sierra Pacific Resources 9,600 276,000
Texas Utilities Co. 1,700 69,275
Unicom Corp. 1,800 48,825
Utilicorp United, Inc. 4,500 121,500
----------
$2,221,146
- -------------------------------------------------------------------------------
Utilities - Gas - 11.9%
Atmos Energy Corp. 700 $ 16,713
Coastal Corp. 1,900 92,863
Columbia Gas Systems, Inc. 2,100 133,612
El Paso Natural Gas Co. 1,800 90,900
Energen Corp. 500 15,125
K N Energy, Inc. 3,100 121,675
Noble Affiliates, Inc. 1,100 52,662
PanEnergy Corp. 3,500 157,500
Sonat, Inc. 1,900 97,850
Tejas Gas Corp.* 700 33,338
Union Pacific Resources Group, Inc. 2,400 70,200
Westcoast Energy, Inc. 2,920 48,910
Western Gas Resources, Inc. 5,700 109,725
Williams Cos., Inc. 2,700 $ 101,250
----------
$1,142,323
- -------------------------------------------------------------------------------
Utilities - Telephone - 13.5%
BCE, Inc. 1,100 $ 52,525
BellSouth Corp. 1,500 60,562
Frontier Corp. 2,900 65,613
GTE Corp. 3,700 168,350
ICG Communications, Inc.* 4,800 84,600
MCI Communications Corp. 5,900 192,856
MFS Communications Co., Inc. 4,700 256,150
NYNEX Corp. 2,000 96,250
Pacific Telesis Group 3,300 121,275
SBC Communications, Inc. 1,600 82,800
Telephone & Data Systems, Inc. 3,000 108,750
----------
$1,289,731
- -------------------------------------------------------------------------------
Total U.S. Stocks $5,865,445
- -------------------------------------------------------------------------------
Foreign Stocks - 17.5%
Argentina - 1.0%
Central Costenera, ADR (Utilities - Electric)## 3,200 $ 97,937
- -------------------------------------------------------------------------------
Brazil - 2.3%
Centrais Electricas Brasileiras S.A.,
ADR (Utilities - Electric) 3,700 $ 68,723
Telecomunicacoes Brasileiras S.A., ADR
(Utilities - Telephone) 2,000 153,000
----------
$ 221,723
- -------------------------------------------------------------------------------
Canada - 0.5%
TransCanada Pipe Lines Ltd. (Utilities - Gas) 2,700 $ 47,250
- -------------------------------------------------------------------------------
Chile - 1.8%
Chilectra S.A., ADR (Utilities - Electric) 2,200 $ 117,700
Chilgener S.A., ADR (Utilities - Electric) 2,700 56,362
----------
$ 174,062
- -------------------------------------------------------------------------------
Italy - 1.0%
Telecom Italia S.p.A. Di Risp
(Utilities - Telephone) 67,400 $ 95,964
- -------------------------------------------------------------------------------
Peru - 1.8%
Telefonica del Peru S.A.,
ADR (Utilities - Telephone) 7,900 $ 149,112
Telefonica del Peru S.A.,
"B" (Utilities - Telephone) 14,500 27,083
----------
$ 176,195
- -------------------------------------------------------------------------------
Philippines - 0.3%
Pilpino Telephone (Utilities - Telephone) 29,000 $ 24,534
- -------------------------------------------------------------------------------
Portugal - 1.1%
Portugal Telecom S.A., ADR (Utilities - Telephone) 2,400 $ 67,800
Portugal Telecom S.A. (Utilities - Telephone) 1,200 34,164
----------
$ 101,964
- -------------------------------------------------------------------------------
South Korea - 0.8%
Korea Mobile Telecommunications, ADR
(Utilities - Telephone)* 6,180 $ 79,567
- -------------------------------------------------------------------------------
Spain - 2.6%
Empresa Nacional de Electricidad, ADR
(Utilities - Electric) 1,300 $ 91,000
Empresa Nacional de Electricidad, ADR
(Utilities - Electric) 1,800 27,900
Iberdrola S.A. (Utilities - Electric) 6,100 86,288
Telefonica de Espana S.A., ADR
(Utilities - Telephone) 600 $ 41,550
----------
$ 246,738
- -------------------------------------------------------------------------------
United Kingdom - 4.3%
National Grid Group PLC (Utilities - Electric) 27,000 $ 90,099
National Power PLC (Utilities - Electric) 11,400 95,504
PowerGen PLC (Utilities - Electric) 22,800 223,180
----------
$ 408,783
- -------------------------------------------------------------------------------
Total Foreign Stocks $1,674,717
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $6,899,724) $7,540,162
- -------------------------------------------------------------------------------
Foreign Convertible Preferred Stock - 0.1%
- -------------------------------------------------------------------------------
Argentina
Compania Inversiones Telephone, 7%
(Utilities - Telephone)##
(Identified Cost, $5,775) 100 $ 5,200
- -------------------------------------------------------------------------------
Short-Term Obligation - 4.4%
- -------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------
Student Loan Marketing Assn., due 1/02/97,
at Amortized Cost $ 420 $ 419,854
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $8,928,253) $9,539,398
Other Assets, Less Liabilities - 0.3% 32,743
- -------------------------------------------------------------------------------
Net Assets - 100.0% $9,572,141
- -------------------------------------------------------------------------------
*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, $8,928,253) $9,539,398
Cash 10,176
Receivable for Series shares sold 64,821
Receivable for investments sold 53,579
Interest and dividends receivable 68,278
Receivable from investment adviser 37,645
Deferred organization expenses 5,535
Other assets 26
----------
Total assets $9,779,458
----------
Liabilities:
Distributions payable $ 71
Payable for Series shares reacquired 8,676
Payable for investments purchased 156,022
Payable to affiliate for management fee 552
Accrued expenses and other liabilities 41,996
----------
Total liabilities $ 207,317
----------
Net assets $9,572,141
==========
Net assets consist of:
Paid-in capital $8,962,715
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 611,242
Accumulated net realized loss on investments and foreign
currency transactions (1,816)
----------
Total $9,572,141
==========
Shares of beneficial interest outstanding 700,567
=======
Net asset value per share
(net assets of $9,572,141 / 700,567 shares of beneficial
interest outstanding) $13.66
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended December 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 206,973
Interest 79,239
Foreign taxes withheld (11,554)
----------
Total investment income $ 274,658
----------
Expenses -
Management fee $ 39,863
Trustees' compensation 2,033
Shareholder servicing agent fee 1,841
Auditing fees 47,656
Printing 44,183
Custodian fee 3,367
Amortization of organization expenses 1,842
Legal fees 1,214
Miscellaneous 3,590
----------
Total expenses $ 145,589
Fees paid indirectly (562)
Reduction of expenses by investment adviser (91,877)
----------
Net expenses $ 53,150
----------
Net investment income $ 221,508
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 562,324
Foreign currency transactions 739
----------
Net realized gain on investments and foreign currency
transactions $ 563,063
----------
Change in unrealized appreciation -
Investments $ 375,075
Translation of assets and liabilities in foreign currencies 175
----------
Net unrealized gain on investments and foreign currency
translation $ 375,250
----------
Net realized and unrealized gain on investments and
foreign currency $ 938,313
----------
Increase in net assets from operations $1,159,821
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 221,508 $ 45,685
Net realized gain on investments
and foreign currency transactions 563,063 103,820
Net unrealized gain on investments
and foreign currency translation 375,250 235,992
----------- -----------
Increase in net assets from
operations $ 1,159,821 $ 385,497
----------- -----------
Distributions declared to shareholders -
From net investment income $ (219,486) $ (42,590)
From net realized gain on investments
and foreign currency transactions (565,934) (100,949)
In excess of net realized gain on
investments and foreign currency
transactions (3,558) --
----------- -----------
Total distributions declared to
shareholders $ (788,978) $ (143,539)
----------- -----------
Series share (principal) transactions -
Net proceeds from sale of shares $10,713,267 $ 3,789,585
Net asset value of shares issued to
shareholders in reinvestment of
distributions 788,907 143,519
Cost of shares reacquired (4,674,045) (1,810,493)
----------- -----------
Increase in net assets from
Series share transactions $ 6,828,129 $ 2,122,611
----------- -----------
Total increase in net assets $ 7,198,972 $ 2,364,569
Net assets:
At beginning of period 2,373,169 8,600
----------- -----------
At end of period (including
accumulated undistributed net
investment income of $0 and
$3,095, respectively) $ 9,572,141 $ 2,373,169
=========== ===========
*For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- --------------------------------------------------------------------------------
Per share data (for a share
outstanding throughout each period):
Net asset value - beginning of period $12.57 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.55 $ 0.39
Net realized and unrealized gain on
investments and foreign currency
transactions 1.78 3.00
------ ------
Total from investment operations $ 2.33 $ 3.39
------ ------
Less distributions declared to
shareholders -
From net investment income $(0.35) $(0.24)
From net realized gain on
investments and foreign currency
transactions (0.88) (0.58)
In excess of realized gain on
investments and foreign currency
transactions (0.01) --
------ ------
Total distributions declared to shareholders $(1.24) $(0.82)
------ ------
Net asset value - end of period $13.66 $12.57
====== ======
Total return 18.51% 33.94%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income 4.19% 3.66%+
Portfolio turnover 121% 94%
Average commission rate### $0.041
6 --
Net assets at end of period (000 omitted) $9,572 $2,373
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the
ratios would have been:
Net investment income $ 0.32 $ 0.17
Ratios (to average net assets):
Expenses 2.75% 3.08%+
Net investment income 2.44% 1.62%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Utilities Series (the Series) is a non-diversified series of MFS Variable
Insurance Trust (the Trust) which is comprised of the following 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 16 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith by
or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that 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.
Forward Foreign Currency Exchange Contracts - The Series may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Series will enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the Series may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Series may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Series may
enter into contracts with the intent of changing the relative exposure of the
Series' portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
Dividend and interest payments received in additional securities are recorded on
the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - The Series' custodian bank calculates its fee based on
the Series' average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Series with the
custodian and with the dividend disbursing agent. This amount is shown as a
reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Series' tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV. Foreign taxes
have been provided for on interest and dividend income earned on foreign
investments in accordance with the applicable country's tax rates and to the
extent unrecoverable are recorded as a reduction of investment income. The
Series expects to pass through to shareholders foreign income taxes paid. The
election increases the taxable distributions of the Series by the amount of the
foreign taxes paid. An individual shareholder who itemizes deductions, or a
corporate shareholder, will be able to claim an offsetting deduction or a tax
credit (but not both) on their federal income tax returns. Individuals who do
not itemize deductions may claim a foreign tax credit but not a deduction. The
foreign source income is considered passive income for the purpose of computing
the foreign tax credit limitations. Distributions to shareholders are recorded
on the ex-dividend date.
The Series distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended Decemer 31, 1996, $5,117 was reclassified from
accumulated undistributed net investment income and $1,742 and $3,376 were
reclassified to accumulated net realized loss on investments and foreign
currency transactions and paid-in capital, respectively, due to differences
between book and tax accounting for real estate investment trusts and currency
transactions. This change had no effect on the net assets or net asset value per
share. At December 31, 1996, accumulated net realized loss on investments and
foreign currency transactions under book accounting were different from tax
accounting due to temporary differences in accounting for 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 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 $117,390,
including $91,877 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 $ 1,962,349 $1,264,570
=========== ==========
Investments (non-U.S. government securities) $10,603,151 $5,257,370
=========== ==========
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 $8,928,253
==========
Gross unrealized appreciation 826,690
Gross unrealized depreciation (215,545)
----------
Net unrealized appreciation $ 611,145
==========
(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:
Year Ended Period Ended
December 31, 1996 December 31, 1995*
------------------------ -------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 809,814 $10,713,267 322,691 $ 3,789,585
Shares issued to
shareholders in
reinvestment
of distributions 57,710 788,907 11,463 143,519
Shares reacquired (355,735) (4,674,045) (146,236) (1,810,493)
-------- ---------- -------- -----------
Net increase 511,789 $ 6,828,129 187,918 $ 2,122,611
======= =========== ======= ===========
*For the period from the commencement of investment operations, January 3, 1995
to December 31, 1995.
(6) Line of Credit
The Series entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Series shares. Interest is charged to each
fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the Series for the year ended December
31, 1996 was $60.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS
Utilities Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Utilities Series (the Series) (one of the
series constituting MFS Variable Insurance Trust) as of 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 (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 Utilities 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>
VUF-2/97 11M
