<PAGE>
Annual Report
[Logo] for year Ended
INVESTMENT MANAGEMENT December 31, 1996
MFS(R) RESEARCH SERIES
A Series of MFS(R) Variable Insurance Trust
[Graphic Omitted]
<PAGE>
MFS(R) RESEARCH SERIES
A Series of MFS(R) Variable Insurance Trust
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management SHAREHOLDER SERVICE CENTER
Company MFS Service Center, Inc.
(Blockbuster Video Franchise) P.O. Box 1400
Boston, MA 02107-9906
DIRECTOR OF RESEARCH
Kevin R. Parke* 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
<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 as if 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 at least 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.
Also, 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 Chairman
Alan Greenspan late in 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.
<PAGE>
Comments from the Director of Research are presented below. We appreciate
your support and welcome any questions or comments you may have.
Respectfully,
/s/ A. Keith Brodkin /s/ Kevin R. Parke
A. Keith Brodkin Kevin R. Parke
Chairman and President Director of Research
January 16, 1997
A Committee of MFS Research Analysts is responsible for the day-to-day
management of the Series under the general supervision of Mr. Parke.
MFS RESEARCH SERIES
For the year ended December 31, 1996, the Series provided a total return of
22.33% (including the reinvestment of distributions). This compares to a return
of 22.64% for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock performance, for the same period.
The Series remains overweighted compared to the S&P 500 in several sectors
including technology, industrial goods and services, consumer staples, and
business services. Relatively neutral weightings to the S&P 500 include
financial services, health care, retailing, and leisure. The Series continues to
be underweighted in energy and in utilities and communications.
Within the technology sector, there were several stocks which contributed
to the Series' performance over the past 12 months. Software companies including
Microsoft, Compuware, BMC Software, and Cisco Systems have established solid
competitive standings within their industry which has led to successful stock
performance.
Several companies within the financial services sector have also performed
well during the past year. Life insurance companies such as Conseco, Allstate,
and ITT Hartford have implemented several cost-savings initiatives which
contributed to recent earnings. Additionally, several banks benefited from the
consolidation in the industry. Both Chase Manhattan and BankBoston proved that a
successful merger or acquisition, coupled with a strong management team, can
contribute to earnings much sooner than anticipated.
While the Series was underweighted in both energy and in utilities and
communications, three companies provided strong returns over the past year.
Newfield Exploration and PanEnergy Corporation proved to have been excellent
additions. Meanwhile, MCI Communications appreciated following the announcement
of a planned acquisition by British Telecommunications PLC.
DIVIDENDS-RECEIVED DEDUCTION
The MFS Research Series has designated $42,311 as a long-term capital gain.
For the year ended December 31, 1996, the amount of distributions from
income eligible for the 70% dividends-received deduction for corporations came
to 20.77%.
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Research
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 August 1, 1995 through December 31, 1996)
MFS S&P 500 Consumer Price
Research Series Composite Index Index - U.S.
--------------- --------------- --------------
8/95 10000.0 10000.0 10000.0
12/95 11062.0 11063.0 10059.0
3/96 11702.0 11659.0 10198.0
6/96 12403.0 12177.0 10272.0
9/96 12880.0 12548.0 10348.0
12/96 13532.0 13591.0 10420.0
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life+
- -------------------------------------------------------------------------------
MFS Research Series +22.33% +23.46%
- -------------------------------------------------------------------------------
Standard & Poor's 500++ +22.64% +26.72%
- -------------------------------------------------------------------------------
Consumer Price Index*++ + 3.56% + 2.91%
- -------------------------------------------------------------------------------
+For the period from the commencement of investment operations, July 26, 1995
to December 31, 1996.
*The Consumer Price Index is a popular measure of change in prices.
++Source: CDA/Wiesenberger.
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
Stocks - 94.2%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 85.6%
Aerospace - 6.2%
General Dynamics Corp. 3,700 $ 260,850
Lockheed-Martin Corp. 5,400 494,100
McDonnell Douglas Corp. 12,000 768,000
United Technologies Corp. 10,200 673,200
-----------
$ 2,196,150
- -----------------------------------------------------------------------------
Agricultural Products - 1.6%
Case Corp. 10,300 $ 561,350
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.7%
Nike, Inc., "B" 2,500 $ 149,375
Reebok International Ltd. 2,400 100,800
-----------
$ 250,175
- -----------------------------------------------------------------------------
Automotive - 0.4%
Goodrich (B.F.) Co. 3,700 $ 149,850
- -------------------------------------------------------------------------------
Banks and Credit Companies - 3.5%
Bank of Boston Corp. 4,140 $ 265,995
Chase Manhattan Corp. 5,732 511,581
Compass Bancshares, Inc. 1,300 51,675
Crestar Financial Corp. 2,300 171,063
Fleet Financial Group, Inc. 4,800 239,400
-----------
$ 1,239,714
- -----------------------------------------------------------------------------
Building - 0.6%
Newport News Shipbuilding, Inc.* 14,900 $ 223,500
- -----------------------------------------------------------------------------
Business Machines - 0.9%
Affiliated Computer Co.* 1,100 $ 32,725
Sun Microsystems, Inc.* 11,000 282,562
-----------
$ 315,287
- -----------------------------------------------------------------------------
Business Services - 3.4%
Accustaff, Inc.* 21,400 $ 452,075
Alco Standard Corp. 6,800 351,050
DST Systems, Inc. 8,300 260,413
Technology Solutions Co.* 3,500 145,250
-----------
$ 1,208,788
- -----------------------------------------------------------------------------
Chemicals - 4.0%
Air Products & Chemicals, Inc. 8,900 $ 615,212
Praxair, Inc. 17,200 793,350
-----------
$ 1,408,562
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 3.2%
Electronic Arts, Inc.* 8,700 $ 260,456
First Data Corp. 7,400 270,100
Microsoft Corp.* 7,600 627,950
-----------
$ 1,158,506
- -----------------------------------------------------------------------------
Computer Software - Systems - 6.2%
Adobe Systems, Inc. 6,000 $ 224,250
BMC Software, Inc.* 7,800 322,725
Cadence Design Systems, Inc.* 8,175 324,956
Computer Associates International, Inc. 5,150 256,212
Compuware Corp.* 2,100 105,263
Oracle Systems Corp.* 15,500 647,125
Sybase, Inc.* 5,300 88,444
Synopsys, Inc.* 5,300 245,125
-----------
$ 2,214,100
- -----------------------------------------------------------------------------
Consumer Goods and Services - 10.1%
Colgate-Palmolive Co. 6,500 $ 599,625
Estee Lauder Cos., "A" 3,700 188,237
Gillette Co. 6,900 536,475
Philip Morris Cos., Inc. 7,500 844,688
Procter & Gamble Co. 5,400 580,500
Revlon, Inc., "A"* 5,500 164,312
Sherwin-Williams Co. 6,100 341,600
Tyco International Ltd. 6,600 348,975
-----------
$ 3,604,412
- -----------------------------------------------------------------------------
Defense Electronics - 0.7%
Loral Space & Communications Corp.* 13,600 $ 249,900
- -----------------------------------------------------------------------------
Electronics - 1.2%
Analog Devices, Inc.* 4,700 $ 159,212
LSI Logic Corp.* 2,400 64,200
Lattice Semiconductor Corp.* 1,300 59,800
Xilinx, Inc.* 4,300 158,294
-----------
$ 441,506
- -----------------------------------------------------------------------------
Entertainment - 1.8%
Clear Channel Communications, Inc.* 1,700 $ 61,413
Jacor Communications, Inc.* 8,600 235,425
Showboat, Inc. 3,200 55,200
Viacom, Inc., "B"* 8,700 303,412
-----------
$ 655,450
- -----------------------------------------------------------------------------
Financial Institutions - 2.1%
Advanta Corp., "B" 9,600 $ 392,400
Union Planters Corp. 9,218 359,483
-----------
$ 751,883
- -----------------------------------------------------------------------------
Food and Beverage Products - 2.6%
Earthgrains Co. 3,500 $ 182,875
McCormick & Co., Inc. 9,100 214,419
PepsiCo, Inc. 6,300 184,275
Tyson Foods, Inc., "A" 10,000 342,500
-----------
$ 924,069
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.8%
Kimberly-Clark Corp. 6,600 $ 628,650
- -----------------------------------------------------------------------------
Insurance - 6.7%
Allstate Corp. 6,600 $ 381,975
Amerin Corp.* 3,500 90,125
CIGNA Corp. 4,000 546,500
Chubb Corp. 4,100 220,375
Conseco, Inc. 2,900 184,875
Equitable of Iowa Cos. 3,700 169,737
ITT Hartford Group, Inc. 4,200 $ 283,500
Penncorp Financial Group, Inc. 13,900 500,400
-----------
$ 2,377,487
- -----------------------------------------------------------------------------
Medical and Health Products - 2.9%
Pfizer, Inc. 3,500 $ 290,063
Pharmacia & Upjohn, Inc. 6,200 245,675
Rhone-Poulenc Rorer, Inc. 2,200 171,875
Uromed Corp.* 12,400 120,900
Ventritex, Inc.* 8,000 197,000
Zoll Medical Corp.* 1,000 10,750
-----------
$ 1,036,263
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.3%
Coventry Corp.* 3,700 $ 34,283
Pacificare Health Systems, Inc., "A"* 4,400 357,500
Pacificare Health Systems, Inc., "B"* 1,100 93,775
RISCORP, Inc., "A"* 1,900 6,887
St. Jude Medical, Inc.* 13,400 571,175
United Healthcare Corp. 10,700 481,500
-----------
$ 1,545,120
- -----------------------------------------------------------------------------
Oil Services - 0.6%
Transocean Offshore, Inc. 3,300 $ 206,662
- -----------------------------------------------------------------------------
Oils - 2.0%
Barrett Resources Corp.* 4,500 $ 191,813
Mobil Corp. 3,000 366,750
Newfield Exploration Co.* 5,800 150,800
-----------
$ 709,363
- -----------------------------------------------------------------------------
Railroads - 3.2%
Burlington Northern-Santa Fe 3,700 $ 319,587
Conrail, Inc. 2,254 224,555
Wisconsin Central Transportation Corp.* 15,400 610,225
-----------
$ 1,154,367
- -----------------------------------------------------------------------------
Restaurants and Lodging - 3.4%
HFS, Inc.* 9,800 $ 585,550
Host Marriott Corp.* 24,400 390,400
MGM Grand, Inc.* 6,500 226,688
Promus Hotel Corp.* 900 26,662
-----------
$ 1,229,300
- -----------------------------------------------------------------------------
Special Products and Services - 0.8%
Stanley Works 11,100 $ 299,700
- -----------------------------------------------------------------------------
Stores - 3.3%
Ann Taylor Stores* 9,600 $ 168,000
CompUSA, Inc.* 12,500 257,813
Gymboree Corp.* 8,100 185,287
Hollywood Entertainment Corp.* 1,400 25,900
Home Depot, Inc. 4,000 200,500
Lowe's Cos., Inc. 5,000 177,500
Micro Warehouse, Inc.* 1,400 16,450
Staples, Inc.* 8,300 149,919
-----------
$ 1,181,369
- -----------------------------------------------------------------------------
Supermarkets - 1.3%
Safeway, Inc.* 10,700 $ 457,425
- -----------------------------------------------------------------------------
Telecommunications - 2.8%
Ascend Communications, Inc.* 800 $ 49,700
Cabletron Systems, Inc.* 5,000 166,250
Cisco Systems, Inc.* 5,300 337,213
Glenayre Technologies, Inc.* 9,600 207,000
Lucent Technologies, Inc. 5,100 235,875
-----------
$ 996,038
- -----------------------------------------------------------------------------
Utilities - Gas - 2.2%
Coastal Corp. 8,500 $ 415,437
PanEnergy Corp. 8,400 378,000
-----------
$ 793,437
- -----------------------------------------------------------------------------
Utilities - Telephone - 1.1%
MCI Communications Corp. 12,400 $ 405,325
- -----------------------------------------------------------------------------
Total U.S. Stocks $30,573,708
- -----------------------------------------------------------------------------
Foreign Stocks - 8.6%
Denmark - 0.2%
ISS International Service System A/S, "B"
(Business Services) 3,100 $ 81,599
- -----------------------------------------------------------------------------
Finland - 0.7%
Huhtamake Group (Conglomerates) 4,500 $ 209,252
TT Tieto OY, "B" (Computer Software - Systems) 600 50,703
-----------
$ 259,955
- -----------------------------------------------------------------------------
France - 0.4%
Union Assurances Federale S.A. (Insurance) 1,200 $ 148,091
- -----------------------------------------------------------------------------
Germany
SAP AG (Computer Software - Systems) 100 $ 13,767
- -----------------------------------------------------------------------------
Greece - 0.3%
Hellenic Telecommunication Organization
S.A. (Telecommunications) 5,000 $ 85,510
- -----------------------------------------------------------------------------
Hong Kong - 1.9%
Giordano International Ltd. (Apparel and Textiles) 142,000 $ 121,169
Wharf Holdings Ltd. (Real Estate
Investment Trusts) 99,000 494,099
Wing Hang Bank Ltd. (Banks and Credit Companies) 16,500 74,884
-----------
$ 690,152
- -----------------------------------------------------------------------------
Italy - 0.5%
Telecom Italia Mobile S.p.A. (Telecommunications)* 128,100 $ 182,658
- -----------------------------------------------------------------------------
Philippines - 0.2%
Pilipino Telegraph & Telephone Corp.
(Telecommunications) 79,500 $ 67,352
- -----------------------------------------------------------------------------
South Korea - 0.4%
Korea Mobile Telecommunications, ADR
(Telecommunications) 9,952 $ 128,132
- -----------------------------------------------------------------------------
Sweden - 1.8%
Astra AB, Free Shares, "B" (Medical and
Health Products) 8,800 $ 424,827
Enator AB (Computer Services)* 3,560 91,155
Nobel Biocare (Medical and Health Products) 6,700 117,975
-----------
$ 633,957
- -----------------------------------------------------------------------------
United Kingdom - 2.2%
British Petroleum PLC, ADR (Oils) 2,908 $ 411,118
Jarvis Hotels PLC (Restaurants and Lodging)+ 56,800 156,669
Kwik-Fit Holdings PLC (Automotive) 43,800 162,454
Storehouse PLC (Stores) 8,000 35,429
-----------
$ 765,670
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 3,056,843
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $31,691,287) $33,630,551
- -----------------------------------------------------------------------------
Short-Term Obligation - 17.1%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Student Loan Marketing Assn., due 1/02/96,
at Amortized Cost $6,100 $ 6,097,882
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $37,789,169) $39,728,433
Other Assets, Less Liabilities - (11.3)% (4,018,047)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $35,710,386
- -----------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
December 31, 1996
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $37,789,169) $39,728,433
Cash 12,608
Receivable for Series shares sold 402,978
Interest and dividends receivable 32,530
Receivable from investment adviser 32,111
Deferred organization expenses 6,556
Other assets 678
-----------
Total assets $40,215,894
-----------
Liabilities:
Payable for Series shares reacquired $ 3,555
Payable for investments purchased 4,463,028
Payable to affiliate for management fee 2,146
Accrued expenses and other liabilities 36,779
-----------
Total liabilities $ 4,505,508
-----------
Net assets $35,710,386
===========
Net assets consist of:
Paid-in capital $33,784,941
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 1,939,303
Accumulated net realized loss on investments and foreign
currency transactions (14,261)
Accumulated undistributed net investment income 403
-----------
Total $35,710,386
===========
Shares of beneficial interest outstanding 2,719,712
=========
Net asset value per share
(net assets of $35,710,386 / 2,719,712 shares of beneficial
interest outstanding) $13.13
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended December 31, 1996
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 124,226
Interest 58,384
Foreign taxes withheld (1,755)
-----------
Total investment income $ 180,855
-----------
Expenses -
Management fee $ 92,348
Trustees' compensation 2,033
Shareholder servicing agent fee 4,217
Printing 30,815
Auditing fees 29,156
Registration fees 11,131
Custodian fee 7,005
Amortization of organization expenses 1,842
Legal fees 1,138
Miscellaneous 969
-----------
Total expenses $ 180,654
Fees paid indirectly (664)
Reduction of expenses by investment adviser (56,859)
-----------
Net expenses $ 123,131
-----------
Net investment income $ 57,724
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 435,932
Foreign currency transactions (1,335)
-----------
Net realized gain on investments and foreign
currency transactions $ 434,597
-----------
Change in unrealized appreciation -
Investments $ 1,826,282
Translation of assets and liabilities in foreign
currencies 38
-----------
Net unrealized gain on investments and foreign
currency translation $ 1,826,320
-----------
Net realized and unrealized gain on investments
and foreign currency $ 2,260,917
-----------
Increase in net assets from operations $ 2,318,641
===========
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 $ 57,724 $ 6,749
Net realized gain on investments and
foreign currency transactions 434,597 31,088
Net unrealized gain on investments and
foreign currency translation 1,826,320 112,983
----------- -----------
Increase in net assets from operations $ 2,318,641 $ 150,820
----------- -----------
Distributions declared to shareholders -
From net investment income $ (55,987) $ (6,583)
From net realized gain on investments and
foreign currency transactions (434,345) (31,088)
In excess of net realized gain on
investments and foreign currency
transactions (15,595) (418)
----------- -----------
Total distributions declared to
shareholders $ (505,927) $ (38,089)
----------- -----------
Series share (principal) transactions -
Net proceeds from sale of shares $36,570,809 $ 2,485,755
Net asset value of shares issued to
shareholders in reinvestment of
distributions 505,927 38,091
Cost of shares reacquired (5,709,233) (115,008)
----------- -----------
Increase in net assets from Series
share transactions $31,367,503 $ 2,408,838
----------- -----------
Total increase in net assets $33,180,217 $ 2,521,569
Net assets:
At beginning of period 2,530,169 8,600
----------- -----------
At end of period (including accumulated
undistributed net investment income of
$403 and $0, respectively) $35,710,386 $ 2,530,169
=========== ===========
*For the period from the commencement of investment operations, July 26, 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 $10.89 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions 2.37 1.01
------ ------
Total from investment operations $ 2.43 $ 1.06
------ ------
Less distributions declared to shareholders -
From net investment income $(0.02) (0.03)
From net realized gain on investments
and foreign currency transactions (0.16) (0.14)
In excess of net realized gain on
investments and foreign currency
transactions (0.01) --
------ ------
Total distributions declared to
shareholders $(0.19) (0.17)
------ ------
Net asset value - end of period $13.13 $10.89
====== ======
Total return 22.33% 10.62%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income 0.47% 1.15%+
Portfolio turnover 56% 28%
Average commission rate### $0.0295 --
Net assets at end of period (000 omitted) $35,710 $2,530
*For the period from the commencement of investment operations, July 26, 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 loss per share and the ratios
would have been:
Net investment loss -- (0.08)
Ratios (to average net assets):
Expenses 1.48% 3.90%+
Net investment loss -- (1.73)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research 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 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.
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 December 31, 1996, $1,334 was reclassified from
accumulated undistributed net investment income to accumulated net realized loss
on investments and foreign currency transactions 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 net
realized loss on investments and foreign currency transactions under book
accounting was 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 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 $73,772,
including $56,859 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 U.S. government securities,
purchased option transactions and short-term obligations, aggregated $35,701,131
and $6,650,754, respectively.
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 $37,789,169
===========
Gross unrealized appreciation $ 2,613,234
Gross unrealized depreciation (673,970)
-----------
Net unrealized appreciation $ 1,939,264
===========
(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 2,923,453 $36,570,809 238,822 $2,485,755
Shares issued to shareholders in
reinvestment of distributions 38,386 505,927 3,521 38,091
Shares reacquired (474,538) (5,709,233) (10,792) (115,008)
--------- ----------- ------- ----------
Net increase 2,487,301 $31,367,503 231,551 $2,408,838
========= =========== ======= ==========
*For the period from the commencement of investment operations, July 26, 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 $155.
(7) Restricted Security
The Series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1996, the Series owned the following restricted security (constituting 0.4% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The value of this security is determined by valuations
supplied by a pricing service or brokers or, if not available, in good faith by
or at the direction of the Trustees.
Description Date of Acquisition Shares Cost Value
- -------------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 - 11/27/96 56,800 $150,129 $156,669
========
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and
Shareholders of MFS Research Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research 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 July 26, 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 Research 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>
VFR-2/97 11M
