<PAGE>
[logo] M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
DECEMBER 31, 1996
MFS(R) VALUE SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[Graphic Omitted]
<PAGE>
MFS(R) VALUE SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
<TABLE>
<C> <C>
TRUSTEES INVESTMENT ADVISER
A. Keith Brodkin* Massachusetts Financial Services Company
Chairman and President 500 Boylston Street
Boston, MA 02116-3741
Nelson J. Darling, Jr.
Trustee, Eastern Enterprises DISTRIBUTOR
(diversified holding company) MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company SHAREHOLDER SERVICE CENTER
(Blockbuster Video Franchise) MFS Service Center, Inc.
P.O. Box 1400
PORTFOLIO MANAGER Boston, MA 02107-9906
John F. Brennan, Jr.*
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
</TABLE>
<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. 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. 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 in late 1996 created some uncertainty over the Federal Reserve
Board's next move. We expect the Fed to maintain its anti-inflationary stance
should signs of more rapid economic growth and, particularly, higher inflation
resurface. While inflationary forces largely remained in check in 1996, the
continued strength in the labor market and rising energy prices mean that a
pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product,
is now less than 2%, which we consider a positive development for the bond
markets. Although interest rates may move higher over the coming months, we
believe that, at current levels, fixed-income markets remain equitably valued.
Internationally, the environment of moderate growth, benign inflation, and
fairly steady interest rates is also providing support for investment markets
and should help support valuation levels in the coming year. Throughout the
world, the key to stock market performance in 1997 will be corporate earnings
growth. While U.S. earnings growth is slowing, but still expected to be fairly
healthy, we anticipate that a number of European countries will see an
acceleration in earnings growth and improved valuations in 1997. Despite this
environment, many European countries trade at discounts to the United States.
In particular, we see opportunities in some of the multinationals, and
businesses with the ability to generate steady earnings growth. In Japan, a
recovery appears to be taking place, but at a very modest rate, with
valuations still at high levels. In the emerging markets, the long-term
economic growth story remains intact and, although selectivity is even more
important in these markets, more companies are benefiting from this growth and
trading at below-average global valuations.
Comments from the portfolio manager of the Series are presented below. We
appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/A. Keith Brodkin /s/John F. Brennan, Jr.
A. Keith Brodkin John F. Brennan, Jr.
Chairman and President Portfolio Manager
January 9, 1997
MFS(R) VALUE SERIES
Over the past 12 months, the three best-performing sectors of the Standard &
Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stock performance, were technology, which was up 46.9%; financial services, up
35.8%; and industrial goods and services, up 28.9%. The worst-performing
sector was utilities and communications, which gained just 1.6%. The Series
was slightly underweighted in technology versus the S&P 500 (9.0% of the
portfolio versus 12.0% of the S&P 500), slightly underweighted in financial
services (12.1% versus 14.8%), and slightly underweighted in industrial goods
and services (7.1% versus 7.9%). Our overweighting in the utilities and
communications sector (10.9% versus 9.5%) is primarily concentrated in the
cellular industry with a large holding in Cellular Communications
International, a member of the Italian licensee Omnitel.
Leisure, our largest sector (21.7% of the portfolio), is a diverse mix of
companies and industries. The Series' primary focus is on the gaming and
lodging industry as well as the broadcasting industry. We believe the lodging
industry will continue to exhibit favorable trends over the near term. Supply
continues to be tight, especially for the high-end, full-service hotels, and
demand remains robust. We expect the key measurements of performance, and
occupancy rates to be positive throughout 1997. While the gaming industry's
expansion slowed in 1996, we continue our enthusiasm for long-term prospects.
Harrah's Entertainment is currently one of the more attractively valued
companies in this industry and results should turn more favorable in the
second half of 1997. In the broadcasting industry, our holdings range across
television and radio -- industries which may benefit from recent deregulation.
Ongoing consolidation should aid revenue and costs as pricing flexibility
increases and programming expenses diminish. Our favorite holdings in this
industry are American Radio and LIN Television.
The Series' industrial goods holdings are focused on the aerospace
industry, which we expect to have a strong runup in profits as the commercial
aircraft cycle evolves over the next several years. We believe BE Aerospace
and BF Goodrich are expected to show strong earnings momentum over this
period.
International holdings are currently 18% of equities and range across
European and Asian markets. In addition to Cellular Communications
International, other large holdings include Tranz Rail (a New Zealand railway)
and Korea Mobile Telecom (a South Korean cellular franchise).
Our outlook for the coming year is cautious. With stock market valuations
at record levels and the recent uptick in interest rates, we believe the
market is vulnerable to negative news. Therefore, we are positioned
conservatively.
PORTFOLIO MANAGER'S PROFILE
John F. Brennan, Jr. is Senior Vice President of MFS and manages MFS Value
Series. He joined MFS as an industry specialist in 1985. He was named Vice
President in 1988 and Senior Vice President in 1995. Mr. Brennan is a graduate
of the University of Rhode Island and the Stanford University Graduate School
of Business Administration.
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
13.82%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Value
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, 1996 to December 31, 1996)
Consumer
MFS Price S&P 500
Value Index - Composite
Date Series U.S. Index
- ---- ------- -------- ---------
8/96 10000.0 10000.0 10000.0
8/96 9960.0 10020.0 10207.0
9/96 10460.0 10054.0 10778.0
10/96 10370.0 10086.0 11079.0
11/96 10800.0 10105.0 11911.0
12/96 10878.0 10124.0 11674.0
AGGREGATE TOTAL RETURNS AS OF DECEMBER 31, 1996
Life+
- ---------------------------------------------------------
MFS Value Series + 8.78%
- ---------------------------------------------------------
Standard & Poor's 500 Composite Index++ +16.74%
- ---------------------------------------------------------
Consumer Price Index*++ + 1.24%
- ---------------------------------------------------------
+For the period from the commencement of investment operations, August 14,
1996 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 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.
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 - 91.9%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 76.9%
Advertising - 0.9%
Outdoor Systems, Inc.* 450 $ 12,656
- -----------------------------------------------------------------------------
Aerospace - 3.3%
AlliedSignal, Inc. 200 $ 13,400
BE Aerospace, Inc.* 1,100 29,837
Raytheon Co. 20 963
----------
$ 44,200
- -----------------------------------------------------------------------------
Agricultural Products - 1.7%
AGCO Corp. 440 $ 12,595
Case Corp. 200 10,900
----------
$ 23,495
- -----------------------------------------------------------------------------
Automotive - 2.6%
Ford Motor Co. 400 $ 12,750
Goodrich (B.F.) Co. 300 12,150
Harvard Industries, Inc., "B"* 2,400 10,800
----------
$ 35,700
- -----------------------------------------------------------------------------
Banks and Credit Companies - 1.3%
Wells Fargo & Co. 65 $ 17,534
- -----------------------------------------------------------------------------
Business Machines - 0.8%
Sun Microsystems, Inc.* 400 $ 10,275
- -----------------------------------------------------------------------------
Business Services - 2.7%
ADT Ltd.* 800 $ 18,300
Alco Standard Corp. 300 15,487
Sabre Group Holdings, Inc.* 100 2,787
----------
$ 36,574
- -----------------------------------------------------------------------------
Cellular Telephones - 0.8%
Telephone & Data Systems, Inc. 300 $ 10,875
- -----------------------------------------------------------------------------
Chemicals - 1.1%
Dexter Corp. 400 $ 12,750
NL Industries, Inc. 200 2,175
----------
$ 14,925
- -----------------------------------------------------------------------------
Computer Software - Systems - 3.3%
Adobe Systems, Inc. 300 $ 11,213
Cerner Corp.* 600 9,300
Sybase, Inc.* 1,400 23,363
----------
$ 43,876
- -----------------------------------------------------------------------------
Consumer Goods and Services - 3.5%
Philip Morris Cos., Inc. 140 $ 15,767
Tyco International Ltd. 600 31,725
----------
$ 47,492
- -----------------------------------------------------------------------------
Containers - 0.4%
Stone Container Corp. 400 $ 5,950
- -----------------------------------------------------------------------------
Defense Electronics - 0.3%
Loral Space & Communications Corp.* 200 $ 3,675
- -----------------------------------------------------------------------------
Electrical Equipment - 0.3%
Rofin-Sinar Technologies, Inc.* 300 $ 3,525
- -----------------------------------------------------------------------------
Electronics - 2.4%
Atmel Corp.* 500 $ 16,562
Intel Corp. 70 9,166
Kulicke & Soffa Industries, Inc.* 100 1,900
LTX Corp.* 700 4,113
----------
$ 31,741
- -----------------------------------------------------------------------------
Entertainment - 7.9%
American Radio Systems Corp., "A"* 330 $ 8,993
Argosy Gaming Co.* 400 1,850
Casino America, Inc.* 800 2,550
Central European Media Enterprises Ltd.* 400 12,700
Chancellor Broadcasting Co., "A"* 280 6,650
EZ Communications, Inc., "A"* 300 10,988
Golden Bear Golf, Inc.* 200 2,250
Harrah's Entertainment, Inc.* 1,600 31,800
Harveys Casino Resorts 200 3,375
LIN Television Corp.* 400 16,900
Showboat, Inc. 300 5,175
Univision Communications, Inc.* 100 3,700
----------
$ 106,931
- -----------------------------------------------------------------------------
Financial Institutions - 3.8%
Benefical Corp. 220 $ 13,943
Federal Home Loan Mortgage Corp. 200 22,025
Union Planters Corp. 400 15,600
----------
$ 51,568
- -----------------------------------------------------------------------------
Food and Beverage Products - 1.3%
Earthgrains Co. 100 $ 5,225
Interstate Bakeries Corp. 260 12,772
----------
$ 17,997
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.4%
Kimberly-Clark Corp. 200 $ 19,050
- -----------------------------------------------------------------------------
Insurance - 4.4%
Chubb Corp. 240 $ 12,900
CIGNA Corp. 100 13,662
ITT Hartford Group, Inc. 200 13,500
Penncorp Financial Group, Inc. 520 18,720
----------
$ 58,782
- -----------------------------------------------------------------------------
Machinery - 1.1%
Stewart & Stevenson Services, Inc. 500 $ 14,563
- -----------------------------------------------------------------------------
Medical and Health Products - 2.6%
Pharmacia & Upjohn, Inc. 360 $ 14,265
Rhone-Poulenc Rorer, Inc. 200 15,625
Uromed Corp.* 500 4,875
----------
$ 34,765
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 3.2%
Pacificare Health Systems, Inc., "B"* 70 $ 5,687
Regency Health Services, Inc.* 400 3,850
St. Jude Medical, Inc.* 500 21,312
United Healthcare Corp. 260 11,700
----------
$ 42,549
- -----------------------------------------------------------------------------
Oil Services - 0.3%
Tidewater, Inc. 100 $ 4,525
- -----------------------------------------------------------------------------
Oils - 1.8%
Occidental Petroleum Corp. 500 $ 11,688
Texaco, Inc. 130 12,756
----------
$ 24,444
- -----------------------------------------------------------------------------
Photographic Products - 0.6%
Eastman Kodak Co. 100 $ 8,025
- -----------------------------------------------------------------------------
Printing and Publishing - 1.9%
Gannett Co., Inc. 170 $ 12,729
Pulitzer Publishing Co. 101 4,684
Scripps (E.W.) Co., "A" 245 8,575
----------
$ 25,988
- -----------------------------------------------------------------------------
Railroads - 1.9%
Burlington Northern-Santa Fe 160 $ 13,820
Wisconsin Central Transportation Corp.* 300 11,887
----------
$ 25,707
- -----------------------------------------------------------------------------
Restaurants and Lodging - 6.9%
Host Marriott Corp.* 2,320 $ 37,120
Prime Hospitality Corp.* 1,000 16,125
Promus Hotel Corp.* 800 23,700
Renaissance Hotel Group N.V.* 100 2,350
Servico, Inc.* 600 9,675
Showbiz Pizza Time, Inc.* 200 3,625
----------
$ 92,595
- -----------------------------------------------------------------------------
Stores - 3.1%
Ann Taylor Stores Corp.* 400 $ 7,000
Gymboree Corp.* 300 6,863
Rite Aid Corp. 370 14,708
Sears, Roebuck & Co. 300 13,837
----------
$ 42,408
- -----------------------------------------------------------------------------
Supermarkets - 1.3%
Vons Cos., Inc.* 300 $ 17,963
- -----------------------------------------------------------------------------
Telecommunications - 6.2%
Cabletron Systems, Inc.* 380 $ 12,635
Cellular Communications International,
Inc.* 2,200 63,800
U.S. Robotics Corp.* 100 7,200
----------
$ 83,635
- -----------------------------------------------------------------------------
Utilities - Telephone - 1.8%
MCI Communications Corp. 760 $ 24,842
- -----------------------------------------------------------------------------
Total U.S. Stocks $1,038,830
- -----------------------------------------------------------------------------
Foreign Stocks - 15.0%
Finland - 2.4%
Huhtamaki Oy (Consumer Goods and Services) 200 $ 9,300
Nokia Corp., ADR (Telecommunications) 400 23,050
----------
$ 32,350
- -----------------------------------------------------------------------------
France - 0.9%
Union Assurances Federale S.A. (Insurance) 100 $ 12,341
- -----------------------------------------------------------------------------
Hong Kong - 2.0%
Cafe de Coral Group (Restaurants and
Lodging) 20,000 $ 5,364
Giordano International Ltd. (Apparel and
Textiles) 8,000 6,826
Liu Chong Hing Bank Ltd. (Banks and Credit
Companies) 2,000 3,336
Wharf Holdings Ltd. (Real Estate Investment
Trusts) 1,000 4,991
Wing Hang Bank Ltd. (Bank and Credit
Companies) 1,500 6,808
----------
$ 27,325
- -----------------------------------------------------------------------------
Italy - 0.8%
Fila Holdings S.p.A., ADR (Apparel and
Textiles) 100 $ 5,812
Olivetti Group (Office Equipment)* 13,600 4,792
----------
$ 10,604
- -----------------------------------------------------------------------------
New Zealand - 2.7%
Lion Nathan Ltd. (Food and Beverage
Products) 3,000 $ 7,185
Sky City Ltd. (Entertainment)* 1,900 10,350
Tranz Rail Holdings Ltd., ADR (Railroads)* 1,040 18,395
----------
$ 35,930
- -----------------------------------------------------------------------------
Philippines - 0.3%
Pilpino Telephone & Telegraph Corp.
(Telecommunications)* 4,800 $ 4,067
- -----------------------------------------------------------------------------
South Korea - 1.3%
Korea Electric Power Corp., ADR (Utilities -
Electric) 500 $ 10,250
Korea Mobile Telecommunications, ADR
(Telecommunications) 618 7,957
----------
$ 18,207
- -----------------------------------------------------------------------------
Sweden - 1.4%
Enator AB (Computer Services)* 480 $ 12,290
Nobel Biocare (Medical and Health Products) 400 7,043
----------
$ 19,333
- -----------------------------------------------------------------------------
United Kingdom - 3.2%
British Petroleum PLC, ADR (Oils) 100 $ 14,137
Jarvis Hotels PLC (Restaurants and Lodging)+ 2,900 7,999
Kwik-Fit Holdings PLC (Automotive) 1,200 4,471
PowerGen PLC (Utilities - Electric) 1,400 13,719
Storehouse PLC (Stores) 700 3,100
----------
$ 43,426
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 203,583
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,168,334) $1,242,413
- -----------------------------------------------------------------------------
Bonds - 2.2%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Harrah's Jazz Co., 14.25s, 2001** (Identified
Cost, $31,496) $ 60 $ 29,721
- -----------------------------------------------------------------------------
Put Option Purchased - 1.7%
- -------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
- -----------------------------------------------------------------------------
S&P Index/September/775 $ 2 $ 9,825
S&P Index/September/800 2 12,500
- -----------------------------------------------------------------------------
Total Put Options Purchased (Premiums Paid, $21,499) $ 22,325
- -----------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted)
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/97,
at Amortized Cost $ 40 $ 39,988
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $1,261,317) $1,334,447
Other Assets, Less Liabilities - 1.2% 16,808
- -----------------------------------------------------------------------------
Net Assets - 100.0% $1,351,255
- -----------------------------------------------------------------------------
*Non-income producing security.
**Non-income producing security - in default.
+Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
December 31, 1996
- ----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,261,317) $1,334,447
Cash 3,534
Receivable for Series shares sold 9,996
Interest and dividends receivable 1,752
Deferred organization expenses 8,499
----------
Total assets $1,358,228
----------
Liabilities:
Payable for Series shares reacquired $ 24
Payable to affiliate for management fee 81
Accrued expenses and other liabilities 6,868
----------
Total liabilities $ 6,973
----------
Net assets $1,351,255
==========
Net assets consist of:
Paid-in capital $1,279,148
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 73,135
Accumulated net realized loss on investments and foreign
currency transactions (1,028)
----------
Total $1,351,255
==========
Shares of beneficial interest outstanding 126,723
=======
Net asset value per share
(net assets of $1,351,255 / 126,723 shares of beneficial
interest outstanding) $10.66
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------
Period Ended December 31, 1996*
- --------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 5,551
Interest 1,832
-------
Total investment income $ 7,383
-------
Expenses -
Management fee $ 3,196
Trustees' compensation 508
Shareholder servicing agent fee 145
Printing 6,506
Auditing fees 2,006
Legal fees 1,922
Amortization of organization expenses 689
Custodian fee 469
Miscellaneous 982
-------
Total expenses $16,423
Fees paid indirectly (84)
Reduction of expenses by investment adviser (12,079)
-------
Net expenses $ 4,260
-------
Net investment income $ 3,123
-------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $18,596
Foreign currency transactions (56)
-------
Net realized gain on investments and foreign currency
transactions $18,540
-------
Change in unrealized appreciation -
Investments $73,130
Translation of assets and liabilities in foreign
currencies 5
-------
Net unrealized gain on investments and foreign currency
translation $73,135
-------
Net realized and unrealized gain on investments and
foreign currency $91,675
-------
Increase in net assets from operations $94,798
=======
*For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
- ---------------------------------------------------------------------------
Period Ended December 31, 1996*
Increase (decrease) in net assets:
From operations -
Net investment income $ 3,123
Net realized gain on investments and foreign currency
transactions 18,540
Net unrealized gain on investments and foreign currency
translation 73,135
----------
Increase in net assets from operations $ 94,798
----------
Distributions declared to shareholders -
From net investment income $ (3,068)
From net realized gain on investments and foreign currency
transactions (18,540)
In excess of net realized gain on investments and foreign
currency transactions (1,083)
Tax return of capital (3,853)
----------
Total distributions declared to shareholders $ (26,544)
----------
Series share (principal) transactions -
Net proceeds from sale of shares $1,251,706
Net asset value of shares issued to shareholders in
reinvestment of distributions 26,544
Cost of shares reacquired (3,849)
----------
Increase in net assets from Series share transactions $1,274,401
----------
Total increase in net assets $1,342,655
Net assets:
At beginning of period 8,600
----------
At end of period $1,351,255
==========
*For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ---------------------------------------------------------------------------
Period Ended December 31, 1996*
- ---------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 10.00
-------
Income from investment operations# -
Net investment income(S) $ 0.07
Net realized and unrealized gain on investments
and foreign currency transactions 0.88
-------
Total from investment operations $ 0.95
-------
Less distributions declared to shareholders -
From net investment income $ (0.03)
From net realized gain on investments and foreign currency
transactions (0.21)
In excess of net realized gain on investments and foreign
currency transactions (0.01)
Tax return of capital (0.04)
-------
Total distributions declared to shareholders $ (0.29)
-------
Net asset value - end of period $ 10.66
=======
Total return 8.78%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00%+
Net investment income 1.72%+
Portfolio turnover 44%
Average commission rate $0.0204
Net assets at end of period (000 omitted) $1,351
*For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
(S)The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual
expenses were over these limitations, the net investment loss per share
and the ratios would have been:
Net investment loss $ (0.04)
Ratios (to average net assets):
Expenses 3.83%+
Net investment loss (1.11)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Value 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.
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. Options listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options
are valued by brokers through the use of a pricing model which takes into
account closing bond valuations, implied volatility and short-term repurchase
rates. 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 period ended Decemer 31, 1996, $55 was reclassified
from accumulated undistributed net investment income to accumulated net
realized loss on investments and foreign currency 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 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 effective 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 $12,079.
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
$1,659,247 and $478,962, 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 $1,261,317
==========
Gross unrealized appreciation $ 112,716
Gross unrealized depreciation (39,586)
----------
Net unrealized appreciation $ 73,130
==========
(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:
Period Ended
December 31, 1996*
------------------------
Shares Amount
- ------------------------------------------------------------------------------
Shares sold 123,715 $1,251,706
Shares issued to shareholders in reinvestment
of distributions 2,506 26,544
Shares reacquired (358) (3,849)
------- ----------
Net increase 125,863 $1,274,401
======= ==========
*For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
(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 period ended
December 31, 1996 was $6.
(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 (consisting of 0.6%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1993. The Series does not have the right to demand that such
security be registered. 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 8/16/96 - 8/23/96 2,900 $7,487 $7,999
======
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Value
Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Value 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 period from August 14,
1996 (commencement of investment operations) to December 31, 1996. 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 Value 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>
VGS-2/97 230
