<PAGE>
Annual Report
[logo] for Year Ended
INVESTMENT MANAGEMENT December 31, 1996
MFS(R) GROWTH WITH INCOME SERIES
A Series of MFS(R) Variable Insurance Trust
[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) GROWTH WITH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
<S> <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 MANAGERS Boston, MA 02107-9906
John D. Laupheimer, Jr.*
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
</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. 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. However, we expect the Fed to maintain its anti-inflationary
stance should signs of more rapid economic growth and, particularly, higher
inflation resurface. While inflationary forces largely remained in check in
1996, the continued strength in the labor market and rising energy prices mean
that a pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product, is
now less than 2%, which we consider a positive development for the bond markets.
Although interest rates may move higher over the coming months, we believe that,
at current levels, fixed-income markets remain equitably valued.
Internationally, the environment of moderate growth, benign inflation, and
fairly steady interest rates is also providing support for investment markets
and should help support valuation levels in the coming year. Throughout the
world, the key to stock market performance in 1997 will be corporate earnings
growth. While U.S. earnings growth is slowing, but still expected to be fairly
healthy, we anticipate that a number of European countries will see an
acceleration in earnings growth and improved valuations in 1997. Despite this
environment, many European countries trade at discounts to the United States. In
particular, we see opportunities in some of the multinationals and businesses
with the ability to generate steady earnings growth. In Japan, a recovery
appears to be taking place, but at a very modest rate, with valuations still at
high levels. In the emerging markets, the long-term economic growth story
remains intact and, although selectivity is even more important in these
markets, more companies are benefiting from this growth and trading at
below-average global valuations.
<PAGE>
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 D. Laupheimer, Jr. /s/ Kevin R. Parke
A. Keith Brodkin John D. Laupheimer, Jr. Kevin R. Parke
Chairman and President Portfolio Manager Portfolio Manager
January 13, 1997
MFS GROWTH WITH INCOME SERIES
For the year ended December 31, 1996, the Growth with Income Series provided a
total return of 24.46%. This compares to a 22.64% return for the Standard &
Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stock performance.
The past year produced a mostly benign investment environment with growth
slowly progressing, which allowed interest rates to stay low and led to improved
valuations. At the same time, many companies continued to report significant
gains in earnings. The Series also benefited from this favorable investment
environment, by being overweighted in sectors that outperformed the market,
while being underweighted in those that lagged the market. For example, the
Series was overweighted in financial services stocks and industrial goods and
services, particularly aerospace and defense stocks, both of which outperformed
the market, as measured by the S&P 500. Meanwhile, underweighted sectors such as
utilities and leisure underperformed the market as measured by the S&P 500.
Financial services stocks benefited from a number of favorable developments.
First, some companies such as First Bank Systems and Norwest have been selling
at significant discounts to the market -- discounts which we feel are not
warranted given their underlying strength. Second, the ongoing and necessary
consolidation of the banking industry benefits the acquiring companies, which
are able to reach broader markets and realize economies of scales, as well as
the stocks of companies being taken over, as they have been bought at
significant premiums.
Meanwhile, the defense and aerospace industry is also going through a
massive consolidation as the defense business shrinks. In most cases, the
resulting acquisitions and mergers are enhancing, not diluting, earnings as
these companies also enjoy increased economies of scale and increased purchasing
power and global strength. We think there will be more mergers in the future.
One industry that did not perform as well as expected was retailing. Going
into the year, we were overweighted in the retail stocks, as they had performed
poorly both in 1994 and 1995, and we felt their valuations were at fairly
attractive levels. As 1996 progressed, however, we reduced our positions in the
retail sector as these companies continued to underperform. Part of the reason
for this underperformance was the continuing high levels of consumer debt and
the overall saturation of retail stores.
Looking ahead, we have some concerns about the S&P 500's ability to continue
to increase earnings at the same pace as the last couple of years. As the
economy slows, the ability of companies to make their earnings estimates will
become more and more significant. As a result, stock selection will become even
more important. In this environment, we believe that our emphasis on original
research, combined with our bottom-up approach to stock selection, should
continue to benefit the Series over the long term.
<PAGE>
PORTFOLIO MANAGERS' PROFILES
John D. Laupheimer, Jr. joined Massachusetts Financial Services (MFS) in 1981 as
an industry specialist and is Portfolio Manager of MFS Growth with Income
Series. A graduate of Boston University and the Sloan School of Management of
Massachusetts Institute of Technology, he was named Investment Officer in 1983,
Assistant Vice President - Investments in 1984, Vice President - Investments in
1986, and Senior Vice President in 1995.
Kevin R. Parke is Senior Vice President of MFS, Director of Equity Research,
and Portfolio Manager of MFS Growth with Income Series. Mr. Parke joined MFS
in 1985 as an industry specialist. He was named Assistant Vice President -
Investments in 1987, Vice President - Investments in 1988, Senior Vice
President in 1993, and Director of Equity Research in 1995. Mr. Parke is a
graduate of Lehigh University and the Harvard University Graduate School of
Business Administration.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
The MFS Growth with Income Series has designated $14,070 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
47.42%.
<PAGE>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Growth with
Income 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 October 1, 1995 to December 31, 1996)
MFS Growth Consumer S&P 500
with Income Series Price Index - U.S. Composite Index
------------------ ------------------ ---------------
10/95 $10,000 $10,000 $10,000
12/95 10,664 10,025 10,601
3/96 11,418 10,152 11,171
6/96 11,850 10,225 11,668
9/96 12,403 10,300 12,024
12/96 13,272 10,372 13,023
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life+
- --------------------------------------------------------------------------------
MFS Growth with Income Series +24.46% +25.88%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index++ +22.64% +23.95%
- --------------------------------------------------------------------------------
Consumer Price Index*++ + 3.56% + 3.01%
- --------------------------------------------------------------------------------
+For the period from the commencement of investment operations, October 9, 1995
to December 31, 1996.
++Source: CDA/Wiesenberger.
*The Consumer Price Index is a popular measure of change in prices.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administrative fees. Please refer to the product's annual report for
performance that reflects the fees and charges imposed by insurance company
separate accounts.
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 - 90.6%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 86.9%
Aerospace - 7.4%
Allied Signal, Inc. 1,450 $ 97,150
General Dynamics Corp. 1,000 70,500
Lockheed-Martin Corp. 1,592 145,668
McDonnell Douglas Corp. 2,400 153,600
Raytheon Co. 1,900 91,438
United Technologies Corp. 1,900 125,400
----------
$ 683,756
- -----------------------------------------------------------------------------
Agricultural Products - 0.5%
Case Corp. 800 $ 43,600
- -----------------------------------------------------------------------------
Apparel and Textiles - 1.7%
Nike, Inc., "B" 1,400 $ 83,650
Reebok International Ltd. 500 21,000
VF Corp. 700 47,250
----------
$ 151,900
- -----------------------------------------------------------------------------
Automotive - 0.9%
Goodrich (B.F.) Co. 2,000 $ 81,000
- -----------------------------------------------------------------------------
Banks and Credit Companies - 8.7%
Bank of Boston Corp. 600 $ 38,550
Chase Manhattan Corp. 400 35,700
Comerica, Inc. 1,100 57,613
Corestates Financial Corp. 100 5,187
Crestar Financial Corp. 800 59,500
First Bank System, Inc. 2,000 136,500
First Chicago NBD Corp. 450 24,187
Firstar Corp. 900 47,250
National City Corp. 1,200 53,850
Northern Trust Co. 1,700 61,625
Norwest Corp. 3,900 169,650
SunTrust Banks, Inc. 1,400 68,950
U.S. Bancorp 900 40,444
----------
$ 799,006
- -----------------------------------------------------------------------------
Business Machines - 0.6%
International Business Machines Corp. 300 $ 45,300
Xerox Corp. 100 5,262
----------
$ 50,562
- -----------------------------------------------------------------------------
Business Services - 1.7%
Alco Standard Corp. 1,400 $ 72,275
Ceridian Corp.* 100 4,050
Computer Sciences, Inc.* 800 65,700
DST Systems, Inc.* 200 6,275
Sabre Group Holdings, Inc.* 400 11,150
----------
$ 159,450
- -----------------------------------------------------------------------------
Cellular Telephones - 0.1%
AirTouch Communications, Inc.* 200 $ 5,050
- -----------------------------------------------------------------------------
Chemicals - 2.8%
Air Products & Chemicals, Inc. 1,200 $ 82,950
Betzdearborn, Inc. 100 5,850
du Pont (E. I.) de Nemours & Co. 800 75,500
Monsanto Corp 1,100 42,763
Praxair, Inc. 1,000 46,125
----------
$ 253,188
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 1.3%
First Data Corp. 1,300 $ 47,450
Microsoft Corp.* 900 74,362
----------
$ 121,812
- -----------------------------------------------------------------------------
Computer Software - Systems - 1.6%
Computer Associates International, Inc. 1,850 $ 92,038
Electronic Data Systems Corp. 100 4,325
Oracle Systems Corp.* 1,100 45,925
----------
$ 142,288
- -----------------------------------------------------------------------------
Consumer Goods and Services - 8.8%
Colgate-Palmolive Co. 1,700 $ 156,825
Gillette Co. 2,450 190,487
Philip Morris Cos., Inc. 2,200 247,775
Procter & Gamble Co. 700 75,250
Service Corp. International 200 5,600
Sherwin-Williams Co. 800 44,800
Tyco International Ltd. 700 37,012
UST, Inc. 1,400 45,325
----------
$ 803,074
- -----------------------------------------------------------------------------
Defense Electronics - 0.2%
Loral Space & Communications Corp.* 1,300 $ 23,888
- -----------------------------------------------------------------------------
Electrical Equipment - 3.2%
General Electric Co. 1,800 $ 177,975
Honeywell, Inc. 1,750 115,062
----------
$ 293,037
- -----------------------------------------------------------------------------
Electronics - 0.9%
Intel Corp. 600 $ 78,563
- -----------------------------------------------------------------------------
Entertainment - 0.3%
Viacom, Inc., "B"* 700 $ 24,413
- -----------------------------------------------------------------------------
Financial Institutions - 4.2%
American Express Co. 600 $ 33,900
Beneficial Corp 2,150 136,256
Federal Home Loan Mortgage Corp. 400 44,050
MBNA Corp. 100 4,150
Merrill Lynch & Co., Inc. 300 24,450
State Street Boston Corp. 1,900 122,550
Union Planters Corp. 600 23,400
----------
$ 388,756
- -----------------------------------------------------------------------------
Food and Beverage Products - 4.8%
Archer Daniels-Midland Co. 1,500 $ 33,000
CPC International, Inc. 900 69,750
Coca Cola Co. 600 31,575
General Mills, Inc. 1,400 88,725
McCormick & Co., Inc. 200 4,712
PepsiCo, Inc. 3,000 87,750
Ralston-Purina Group 650 47,694
Tyson Foods, Inc., "A" 1,100 $ 37,675
Wrigley (William) Jr. Co. 700 39,375
----------
$ 440,256
- -----------------------------------------------------------------------------
Forest and Paper Products - 1.3%
Kimberly-Clark Corp. 1,300 $ 123,825
- -----------------------------------------------------------------------------
Insurance - 6.8%
AFLAC, Inc 1,300 $ 55,575
Allstate Corp. 1,200 69,450
CIGNA Corp. 750 102,469
Chubb Corp. 300 16,125
ITT Hartford Group, Inc. 1,000 67,500
MBIA, Inc. 100 10,125
Progressive Corp. Ohio 1,700 114,537
St. Paul Cos., Inc. 900 52,762
Torchmark Corp. 1,050 53,025
Transamerica Corp. 700 55,300
Travelers Group, Inc. 500 22,687
UNUM Corp. 100 7,225
----------
$ 626,780
- -----------------------------------------------------------------------------
Machinery - 1.7%
Deere & Co., Inc. 850 $ 34,531
Ingersoll Rand Co. 1,400 62,300
York International Corp. 1,000 55,875
----------
$ 152,706
- -----------------------------------------------------------------------------
Medical and Health Products - 5.8%
American Home Products Corp. 600 $ 35,175
Fresenius National Medical Care* 100 11
Johnson & Johnson 2,500 124,375
Lilly (Eli) & Co. 700 51,100
Pfizer, Inc. 700 58,012
Pharmacia & Upjohn, Inc. 700 27,738
Rhone-Poulenc Rorer, Inc. 1,500 117,188
Warner-Lambert Co. 1,600 120,000
----------
$ 533,599
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 2.1%
Medtronic, Inc. 400 $ 27,200
Pacificare Health Systems, Inc., "B"* 600 51,150
St. Jude Medical, Inc.* 2,000 85,250
United Healthcare Corp. 700 31,500
----------
$ 195,100
- -----------------------------------------------------------------------------
Metals and Minerals - 0.5%
Phelps Dodge Corp. 700 $ 47,250
- -------------------------------------------------------------------------------
Oil Services - 0.3%
Schlumberger Ltd. 300 $ 29,962
- -----------------------------------------------------------------------------
Oils - 5.2%
Amoco Corp. 300 $ 24,150
Chevron Corp. 800 52,000
Exxon Corp. 1,100 107,800
Mobil Corp. 1,250 $ 152,813
Texaco, Inc. 1,400 137,375
----------
$ 474,138
- -----------------------------------------------------------------------------
Photographic Products - 0.8%
Eastman Kodak Co. 900 $ 72,225
- -----------------------------------------------------------------------------
Printing and Publishing - 1.6%
Gannett Co., Inc. 1,100 $ 82,362
Tribune Co., Inc. 800 63,100
----------
$ 145,462
- -----------------------------------------------------------------------------
Railroads - 2.0%
Burlington Northern-Santa Fe 600 $ 51,825
CSX Corp. 1,300 54,925
Conrail, Inc. 459 45,728
Illinois Central Corp. 1,125 36,000
----------
$ 188,478
- -----------------------------------------------------------------------------
Restaurants and Lodging - 0.1%
McDonald's Corp. 200 $ 9,050
- -------------------------------------------------------------------------------
Special Products and Services - 0.2%
Stanley Works 700 $ 18,900
- -------------------------------------------------------------------------------
Stores - 2.3%
CVS Corp. 400 $ 16,550
Circuit City Stores, Inc. 600 18,075
Home Depot, Inc. 800 40,100
Lowe's Cos., Inc. 1,100 39,050
Penney (J.C.), Inc. 1,000 48,750
Sears, Roebuck & Co. 600 27,675
Staples, Inc.* 300 5,419
Talbots, Inc. 500 14,313
----------
$ 209,932
- -----------------------------------------------------------------------------
Supermarkets - 0.8%
Kroger Co.* 100 $ 4,650
Safeway, Inc.* 1,000 42,750
Vons Cos., Inc.* 500 29,938
----------
$ 77,338
- -----------------------------------------------------------------------------
Telecommunications - 0.4%
Lucent Technologies, Inc. 800 $ 37,000
- -------------------------------------------------------------------------------
Utilities - Electric - 1.6%
Allegheny Power System, Inc. 600 $ 18,225
CMS Energy Corp. 100 3,363
Cinergy Corp. 600 20,025
DPL, Inc. 600 14,700
FPL Group, Inc. 1,000 46,000
GPU, Inc. 100 3,363
Illinova Corp. 100 2,750
Pinnacle West Capital Corp. 100 3,175
Portland General Corp. 800 33,600
----------
$ 145,201
- -----------------------------------------------------------------------------
Utilities - Gas - 0.8%
Consolidated Natural Gas Co. 500 $ 27,625
Pacific Enterprises 500 15,187
PanEnergy Corp. 700 31,500
----------
$ 74,312
- -----------------------------------------------------------------------------
Utilities - Telephone - 2.9%
Ameritech Corp. 100 $ 6,062
BellSouth Corp. 100 4,037
GTE Corp. 2,150 97,825
MCI Communications Corp. 3,500 114,406
Pacific Telesis Group 600 22,050
SBC Communications, Inc. 500 25,875
----------
$ 270,255
- -----------------------------------------------------------------------------
Total U.S. Stocks $7,975,112
- -----------------------------------------------------------------------------
Foreign Stocks - 3.7%
Germany - 0.2%
Henkel KGaA (Chemicals) 200 $ 9,863
Hoechst AG (Chemicals) 200 9,253
----------
$ 19,116
- -----------------------------------------------------------------------------
Hong Kong - 0.7%
Hongkong Land Holdings Ltd. (Real Estate
Investment Trusts) 6,000 $ 16,680
Mandarin Oriental International Ltd.
(Restaurants and Lodging) 6,000 8,460
Swire Pacific Ltd., "A" (Airlines)* 1,500 14,302
Wharf Holdings Ltd. (Real Estate
Investment Trusts) 4,000 19,961
----------
$ 59,403
- -----------------------------------------------------------------------------
Japan - 0.2%
Canon, Inc. (Business Machines) 1,000 $ 22,056
- -----------------------------------------------------------------------------
Netherlands - 0.2%
Royal Dutch Petroleum Co. (Oils) 100 $ 17,075
- -----------------------------------------------------------------------------
New Zealand - 0.1%
Lion Nathan Ltd. (Food and Beverage
Products) 5,400 $ 12,934
- -----------------------------------------------------------------------------
South Korea - 0.2%
Korea Mobile Telecommunications, ADR
(Telecommunications) 1,133 $ 14,587
- -------------------------------------------------------------------------------
Sweden - 0.9%
Astra AB, Free Shares, "B" (Medical and
Health Products) 1,250 $ 60,230
Sparbanken Svergie, "A" (Financial
Services) 1,200 20,562
----------
$ 80,792
- -----------------------------------------------------------------------------
United Kingdom - 1.2%
British Petroleum PLC, ADR (Oils) 300 $ 42,413
PowerGen PLC (Utilities - Electric) 6,400 62,647
SmithKline Beecham PLC, ADR (Medical and
Health Products) 100 6,800
----------
$ 111,860
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 337,823
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $7,477,367) $8,312,935
- -----------------------------------------------------------------------------
Convertible Preferred Stocks - 0.1%
- -----------------------------------------------------------------------------
Atlantic Richfield Co., 9s (Oils) 300 $ 6,450
Tosco Financing Trust, 5.75s (Financial
Institutions)## 100 5,137
- -----------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $12,434) $ 11,587
- -----------------------------------------------------------------------------
Convertible Bond - 0.2%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Sandoz Capital BVI Ltd., 2s, 2002 (Chemicals)##
(Identified Cost, $16,038) $ 15 $ 16,125
- -----------------------------------------------------------------------------
Short-Term Obligation - 8.3%
- -----------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/97, at
Amortized Cost $760 $ 759,778
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $8,265,617) $9,100,425
Other Assets, Less Liabilities - 0.8% 73,688
- -----------------------------------------------------------------------------
Net Assets - 100.0% $9,174,113
- -----------------------------------------------------------------------------
*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, $8,265,617) $ 9,100,425
Cash 3,065
Receivable for Series shares sold 54,054
Interest and dividends receivable 15,931
Receivable from investment adviser 20,150
Deferred organization expenses 6,923
Other assets 4
-----------
Total assets $ 9,200,552
-----------
Liabilities:
Payable for Series shares reacquired $ 30
Payable to affiliate for management fee 559
Accrued expenses and other liabilities 25,850
-----------
Total liabilities $ 26,439
-----------
Net assets $ 9,174,113
===========
Net assets consist of:
Paid-in capital $ 8,348,221
Unrealized appreciation on investments
and translation of assets and liabilities in foreign
currencies 834,814
Accumulated net realized loss on investments
and foreign currency transactions (10,421)
Accumulated undistributed net investment income 1,499
-----------
Total $ 9,174,113
===========
Shares of beneficial interest outstanding 706,552
=======
Net asset value per share
(net assets of $9,174,113 / 706,552 shares of beneficial
interest outstanding) $12.98
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
- --------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 75,866
Interest 27,710
Foreign taxes withheld (730)
---------
Total investment income $ 102,846
---------
Expenses -
Management fee $ 30,792
Trustees' compensation 2,033
Shareholder servicing agent fee 1,412
Auditing fees 22,806
Printing 16,973
Custodian fee 3,633
Amortization of organization expenses 1,842
Legal fees 1,214
Miscellaneous 3,555
---------
Total expenses $ 84,260
Fees paid indirectly (545)
Reduction of expenses by investment adviser (42,658)
---------
Net expenses $ 41,057
---------
Net investment income $ 61,789
---------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 85,728
Foreign currency transactions 100
---------
Net realized gain on investments and foreign
currency transactions $ 85,828
---------
Change in unrealized appreciation -
Investments $ 814,056
Translation of assets and liabilities in foreign
currencies 6
---------
Net unrealized gain on investments and foreign
currency translation $ 814,062
---------
Net realized and unrealized gain on
investments and foreign currency $ 899,890
---------
Increase in net assets from operations $ 961,679
=========
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 $ 61,789 $ 1,747
Net realized gain on investments and
foreign currency transactions 85,828 47
Net unrealized gain on investments and
foreign currency translation 814,062 20,752
---------- --------
Increase in net assets from operations $ 961,679 $ 22,546
---------- --------
Distributions declared to shareholders -
From net investment income $ (60,288) $ (1,794)
From net realized gain on investments and
foreign currency transactions (85,828) (20)
In excess of net realized gain on
investments and foreign currency
transactions (10,368) --
Tax return of capital -- (35)
---------- --------
Total distributions declared to
shareholders $ (156,484) $ (1,849)
---------- --------
Series share (principal) transactions -
Net proceeds from sale of shares $8,604,219 $338,677
Net asset value of shares issued to
shareholders in reinvestment of
distributions 156,483 1,849
Cost of shares reacquired (756,607) (5,000)
---------- --------
Increase in net assets from Series
share transactions $8,004,095 $335,526
---------- --------
Total increase in net assets $8,809,290 $356,223
Net assets:
At beginning of period 364,823 8,600
---------- --------
At end of period (including accumulated
undistributed net investment income of
$1,499 and $0, respectively) $9,174,113 $364,823
========== ========
*For the period from the commencement of investment operations, October 9, 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 $10.61 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.18 $ 0.05
Net realized and unrealized gain on
investments
and foreign currency transactions 2.42 0.61
------ ------
Total from investment operations $ 2.60 $ 0.66
------ ------
Less distributions declared to
shareholders -
From net investment income $(0.09) $(0.05)
From net realized gain on investments
and foreign currency transactions (0.13) --
In excess of net realized gain on
investments and foreign currency
transactions (0.01) --
------ ------
Total distributions declared to
shareholders $(0.23) $(0.05)
------ ------
Net asset value - end of period $12.98 $10.61
====== ======
Total return 24.46% 6.64%++
Ratios (to average net assets)
/Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income 1.52% 2.20%+
Portfolio turnover 41% 2%
Average commission rate### $0.0351 --
Net assets at end of period (000 omitted) $9,174 $365
* For the period from the commencement of investment operations, October 9,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commision 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 (loss) per share and
the ratios would have been:
Net investment income (loss) $ 0.05 $(0.41)
Ratios (to average net assets):
Expenses 2.07% 21.44%+
Net investment income (loss) 0.46% (18.24)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Growth with Income 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 17 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.
Distributions to shareholders are recorded on the ex-dividend date. 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.
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, $2 and $53 was reclassified from
accumulated undistributed net investment income and accumulated net realized
loss on investments and foreign currency transactions, respectively, to paid-in
capital due to differences between book and tax accounting for currency
transactions. This change had no effect on the net assets or net asset value per
share. At December 31, 1996, accumulated undistributed net investment income and
accumulated 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 and tax spillbacks.
(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 $58,884,
including $42,658 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 $8,634,771
and $1,538,106, 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 $8,265,617
==========
Gross unrealized appreciation $ 894,924
Gross unrealized depreciation (60,116)
----------
Net unrealized appreciation $ 834,808
==========
(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 720,635 $8,604,219 33,867 $338,677
Shares issued to shareholders
in reinvestment of
distributions 11,899 156,483 175 1,849
Shares reacquired (60,384) (756,607) (500) (5,000)
------- ---------- ------ --------
Net increase 672,150 $8,004,095 33,542 $335,526
======= ========== ====== ========
*For the period from the commencement of investment operations, October 9, 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 $51.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Growth
with Income Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Growth with Income 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 October 9, 1995 (the commencement of investment
operations) to December 31, 1995. These financial statements and financial
highlights are the responsibility of the Series' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Growth with
Income 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>
VGI-2/97 4M
