<PAGE>
[logo] M F S(SM) ANNUAL REPORT
INVESTMENT MANAGEMENT FOR YEAR ENDED
DECEMBER 31, 1996
MFS(R) EMERGING GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST
[Graphic Omitted]
<PAGE>
MFS(R) EMERGING GROWTH 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 MANAGERS Boston, MA 02107-9906
John W. Ballen*
Toni Y. Shimura* 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 as if U.S. growth in 1997
will slow modestly relative to 1996, there is evidence that Europe and, to a
lesser degree, Japan are continuing their recoveries from recession. At the
same time, companies in many emerging markets are reporting robust increases
in earnings as these markets benefit from higher-than-average economic growth
and market reforms, which should continue to provide more opportunities for
development and trade.
After more than six years of expansion, the U.S. economy appears headed
toward another year of at least moderate growth in 1997, although a few signs
point to the possibility of a modest rise in inflation during the year. On the
positive side, the pattern of moderate growth and inflation set over the past
few years now seems fairly well entrenched in the economy and, short of a
major international or domestic crisis, appears to have enough momentum to
remain on track for some time. Recent gains in such important sectors as
housing, automobiles, industrial production, and exports indicate a fair
amount of underlying strength in the economy. However, some reason for caution
can be seen in the continuing high levels of consumer debt and their attendant
rise in personal bankruptcies, as well as in the modestly disappointing levels
of holiday sales. Also, the ongoing tightness in labor markets, and price
rises in such important sectors as energy, could add some inflationary
pressures to the economy. Given these somewhat conflicting indicators, we
expect real (inflation-adjusted) growth to revolve around 2% in 1997, which
would represent a modest decline from 1996.
We continue to urge U.S. equity investors to lower their expectations for
1997 and to point out that the impressive gains of the past two years are not
sustainable. Just as the slowdown in corporate earnings growth and increases
in interest rates in 1996 raised some near-term concerns, further interest
rate increases and an acceleration of inflation could negatively affect the
stock market in 1997. However, to the extent that some slowdown in earnings
means that the economy is not overheating, this may be beneficial for the
equity market in the long run. Also, we believe many of the technology-driven
productivity gains that U.S. companies have made in recent years will continue
to enhance corporate America's competitiveness and profitability. Therefore,
while we have some near-term concerns, we remain reasonably positive about the
long-term viability of the equity market.
In U.S. bond markets, conflicting signals over the strength of the economy
have created near-term volatility. Even comments by Federal Reserve Chairman
Alan Greenspan late in 1996 created some uncertainty over the Federal Reserve
Board's next move. We expect the Fed to maintain its anti-inflationary stance
should signs of more rapid economic growth and, particularly, higher inflation
resurface. While inflationary forces largely remained in check in 1996, the
continued strength in the labor market and rising energy prices mean that a
pickup in inflation is still possible. At the same time, the U.S. budget
deficit continues to decline and, as a percentage of gross domestic product,
is now less than 2%, which we consider a positive development for the bond
markets. Although interest rates may move higher over the coming months, we
believe that, at current levels, fixed-income markets remain equitably valued.
Internationally, the environment of moderate growth, benign inflation, and
fairly steady interest rates is also providing support for investment markets
and should help support valuation levels in the coming year. Throughout the
world, the key to stock market performance in 1997 will be corporate earnings
growth. While U.S. earnings growth is slowing but still expected to be fairly
healthy, we anticipate that a number of European countries will see an
acceleration in earnings growth and improved valuations in 1997. Despite this
environment, many European countries trade at discounts to the United States.
In particular, we see opportunities in some of the multinationals and
businesses with the ability to generate steady earnings growth. In Japan, a
recovery appears to be taking place, but at a very modest rate, with
valuations still at high levels. In the emerging markets, the long-term
economic growth story remains intact and, although selectivity is even more
important in these markets, more companies are benefiting from this growth and
trading at below-average global valuations.
Comments from the portfolio managers 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 W. Ballen /s/Toni Y. Shimura
A. Keith Brodkin John W. Ballen Toni Y. Shimura
Chairman and President Portfolio Manager Portfolio Manager
January 16, 1997
MFS EMERGING GROWTH SERIES
For the 12 months ended December 31, 1996, the Series provided a total return
of 17.02%. This compares to a 16.35% return for the Russell 2000 Total Return
Index (the Russell 2000) and a 22.64% return for the Standard & Poor's 500
Composite Index (the S&P 500) for the same period. The Russell 2000 is an
unmanaged index comprised of 2,000 of the smallest U.S.-domiciled companies'
common stocks (on the basis of capitalization) that are traded in the United
States on the New York Stock Exchange, the American Stock Exchange, and the
NASDAQ. The S&P 500 is an unmanaged index of common stock performance. It is
not possible to invest in an index. Although the Series' performance benefited
from the strong stock price appreciation of many of its holdings in the
technology and consumer sectors, the overall stock market in 1996 was
dominated by the larger capitalization issues as represented by the Dow Jones
Industrial Average and the S&P 500. However, the Series' performance compared
favorably to the Russell 2000 as investors rewarded the earnings growth of
many of the companies owned by the Series.
Generally, the business and economic environment was benign. Modest
economic growth coupled with productivity gains by corporate America provided
a favorable environment. However, semiconductor issues performed poorly as
inventory surpluses hurt sales. Health maintenance organizations (HMOs) also
performed weakly as companies underestimated health care costs and set their
prices too low. This poor performance spilled over into the first half of the
year for the entire technology and health care sectors -- the larger
components of the portfolio. Also, many smaller companies underperformed most
of the year. With a very strong market, investors ignored the strong earnings
growth of the smaller companies and bid up prices of the larger companies
instead. Earnings results for the smaller companies within the Series
generally remained strong all year.
The performance of the Series' largest sector, technology stocks, reflects
the restructuring occurring throughout corporate America, which has improved
productivity. Much of this restructuring has been made possible by technology
companies, especially software and networking companies, that are helping
their corporate customers reduce costs. Oracle Systems, a database and
applications provider, BMC Software, Computer Associates, and Compuware have
all performed well.
At the same time, consumer service companies such as HFS, Inc. have also
helped the Series' performance. HFS has acquired companies in the hotel, real
estate, and car rental businesses and produced over 30% internal growth from
revenue opportunities and cost savings. Supplementing this internal growth has
been what we believe is the best acquisition team thus far during the 1990s.
Several acquisitions greatly increased HFS' earnings growth rate in 1996.
While the stock has outperformed the market, its valuation has lagged its
earnings growth rate, making it attractively priced.
One sector that did not perform as well as expected is health care. HMOs
set their prices too low to ensure revenues in 1996. United Healthcare,
Healthsource, and MidAtlantic Medical all underperformed. We are, however,
optimistic that these companies will benefit from price increases implemented
in 1997.
Looking ahead, we see a continuation of the slow economic growth that the
United States has been experiencing for the last few years. Although this has
been a slow-growing economy, it has been great for corporate earnings as
restructurings have lowered corporate costs and improved margins. Many of the
smaller companies, having lower costs, can thereby capitalize on this trend.
We believe technology and outsourcing companies, which are large holdings for
the Series, can continue to benefit from these developments.
PORTFOLIO MANAGERS' PROFILES
John Ballen began his career at Massachusetts Financial Services (MFS) as an
industry specialist in 1984. A graduate of Harvard College, the University of
New South Wales, and the Stanford University Graduate School of Business
Administration, he was promoted to Investment Officer in 1986, Vice President
- - Investments in 1987, Director of Research in 1988, and Senior Vice President
in 1990. In 1993, he became Director of Equity Portfolio Management and in
1995 he became Chief Equity Officer. He has managed MFS Emerging Growth Series
since its inception in 1995.
Toni Y. Shimura joined the MFS Research Department in 1987. A graduate of
Wellesley College and of Massachusetts Institute of Technology's Sloan School
of Management, she was promoted to Investment Officer in 1990, Assistant Vice
President - Investments in 1991, and Vice President - Investments in 1992. She
has managed MFS Emerging Growth Series since 1995.
DIVIDENDS-RECEIVED DEDUCTION
The MFS Emerging Growth Series has designated $90,363 as a long-term capital
gain.
For the year ended December 31, 1996, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
2.63%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Emerging
Growth Series shares in comparison to various market indicators. Benchmark
comparisons are unmanaged and do not reflect any fees or expenses. You cannot
invest in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the Period from August 1, 1995 to December 31, 1996)
MFS Consumer
Emerging S&P 500 Price
Growth Composite Index - Russell
Date Series Index U.S. 2000
- ---- ------- --------- -------- -------
8/95 10000.0 10000.0 10000.0 10000.0
12/95 11740.0 11063.0 10059.0 10614.0
3/96 12543.0 11659.0 10198.0 11156.0
6/96 13510.0 12177.0 10272.0 11714.0
9/96 13973.0 12548.0 10348.0 11754.0
12/96 13739.0 13591.0 10420.0 12365.0
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
1 Year Life+
- ---------------------------------------------------------------------------
MFS Emerging Growth Series +17.02% +24.67%
- ---------------------------------------------------------------------------
Russell 2000 Total Return Index++ +16.35% +16.14%
- ---------------------------------------------------------------------------
Standard & Poor's 500 Composite Index++ +22.64% +24.13%
- ---------------------------------------------------------------------------
Consumer Price Index*++ + 3.56% + 2.80%
- ---------------------------------------------------------------------------
+For the period from the commencement of investment operations, July 24, 1995
to December 31, 1996.
*The Consumer Price Index is a popular measure of change in prices.
++Source: CDA/Wiesenberger. Benchmark comparisons begin on 8/1/96.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the product's annual report
for performance that reflects the fees and charges imposed by insurance
company separate accounts.
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
Series results reflect any applicable expense subsidies and waivers, without
which the performance results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1996
Stocks - 91.7%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
U.S. Stocks - 86.9%
Apparel and Textiles - 0.1%
Nine West Group, Inc.* 2,700 $ 125,213
- -----------------------------------------------------------------------------
Automotive
APS Holding Corp., "A"* 2,000 $ 31,000
- -----------------------------------------------------------------------------
Business Machines - 2.5%
Affiliated Computer Co.* 32,400 $ 963,900
Sun Microsystems, Inc.* 62,900 1,615,744
------------
$ 2,579,644
- -----------------------------------------------------------------------------
Business Services - 11.8%
ADT, Ltd.* 37,800 $ 864,675
Accustaff, Inc.* 49,400 1,043,575
Alco Standard Corp. 9,400 485,275
CUC International, Inc. 55,000 1,306,250
Computer Sciences, Inc.* 11,000 903,375
DST Systems, Inc.* 28,300 887,912
Employee Solutions, Inc.* 27,600 565,800
Equity Corporation International* 2,100 42,000
Forrester Research, Inc.* 400 10,300
International Network Services* 200 6,038
Learning Tree International, Inc.* 76,600 2,259,700
Loewen Group, Inc. 9,600 375,600
Nu Skin Asia, Inc., "A"* 500 15,438
Sabre Group Holdings, Inc.* 3,900 108,712
Superior Consultant Holdings Corp.* 800 19,800
Technology Solutions Co.* 73,650 3,056,475
Thermo Fibergen, Inc.* 6,200 65,100
Transaction System Architects, Inc., "A"* 11,300 375,725
------------
$ 12,391,750
- -----------------------------------------------------------------------------
Chemicals - 0.3%
Betzdearborn, Inc. 5,000 $ 292,500
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 3.6%
Autodesk, Inc. 285 $ 7,980
First Data Corp. 39,600 1,445,400
Microsoft Corp.* 27,550 2,276,319
Spectrum Holobyte Industries, Inc.* 1,000 7,500
------------
$ 3,737,199
- -----------------------------------------------------------------------------
Computer Software - Systems - 21.6%
Adobe Systems, Inc. 2,800 $ 104,650
BMC Software, Inc.* 119,600 4,948,450
Cadence Design Systems, Inc.* 48,675 1,934,831
Computer Associates International, Inc. 87,900 4,373,025
Compuware Corp.* 36,700 1,839,588
Information Management Resources, Inc.* 500 10,562
Ingram Micro, Inc., "A"* 1,400 32,200
Oracle Systems Corp.* 135,800 5,669,650
Parametric Technology Co.* 27,900 1,433,362
Sterling Software, Inc.* 21,500 679,938
Sybase, Inc.* 16,350 272,841
Synopsys, Inc.* 15,600 721,500
USCS International, Inc.* 7,900 133,312
Viasoft, Inc.* 5,900 278,775
Xionics Document Technologies, Inc.* 19,000 237,500
------------
$ 22,670,184
- -----------------------------------------------------------------------------
Construction Services - 0.8%
Shaw Group Inc.* 35,000 $ 818,125
- -----------------------------------------------------------------------------
Consumer Goods and Services - 2.8%
Carson, Inc.* 63,600 $ 882,450
Service Corp. International 3,500 98,000
Tyco International Ltd. 37,500 1,982,813
------------
$ 2,963,263
- -----------------------------------------------------------------------------
Electronics - 7.5%
Actel Corp.* 9,000 $ 213,750
Altera Corp.* 25,100 1,824,456
Analog Devices, Inc.* 26,200 887,525
Atmel Corp.* 11,700 387,562
Intel Corp. 5,300 693,969
LSI Logic Corp.* 24,300 650,025
Lattice Semiconductor Corp.* 15,200 699,200
Linear Technology Corp. 18,100 794,138
Novellus Systems, Inc.* 1,600 89,200
Teradyne, Inc.* 17,800 433,875
Ultratech Stepper, Inc.* 6,200 147,250
VLSI Technology, Inc.* 23,700 565,837
Xilinx, Inc.* 14,300 526,419
------------
$ 7,913,206
- -----------------------------------------------------------------------------
Entertainment - 2.1%
Cox Radio, Inc., "A"* 20,700 $ 362,250
Harrah's Entertainment, Inc.* 19,700 391,537
Heritage Media Corp., "A"* 17,100 192,375
International Speedway Corp., "A"* 500 10,250
Jacor Communications, Inc.* 3,900 106,763
LIN Television Corp.* 21,100 891,475
Sinclair Broadcasting Group, Inc., "A"* 3,500 91,000
Univision Communications, Inc.* 4,800 177,600
------------
$ 2,223,250
- -----------------------------------------------------------------------------
Financial Institutions - 1.8%
Associates First Capital Corp.* 13,900 $ 613,337
Dean Witter Discover & Co. 5,700 377,625
Franklin Resources, Inc. 2,000 136,750
MBNA Corp. 18,300 759,450
------------
$ 1,887,162
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.7%
Earthgrains Co. 13,400 $ 700,150
- -----------------------------------------------------------------------------
Machinery - 0.2%
SI Handling Systems, Inc. 15,700 $ 236,481
- -----------------------------------------------------------------------------
Medical and Health Products - 0.1%
Ventritex, Inc.* 3,900 $ 96,038
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 8.6%
Columbia/HCA Healthcare Corp. 150 $ 6,112
Foundation Health Corp.* 200 6,350
Healthsource, Inc.* 15,900 208,688
Healthsouth Corp.* 51,500 1,989,188
Pacificare Health Systems, Inc., "B"* 20,400 1,739,100
St. Jude Medical, Inc.* 8,300 353,787
United Healthcare Corp. 103,500 4,657,500
------------
$ 8,960,725
- -----------------------------------------------------------------------------
Oil Services
National-Oilwell, Inc.* 500 $ 15,375
Offshore Energy Development Corp.* 100 1,525
------------
$ 16,900
- -----------------------------------------------------------------------------
Oils - 0.2%
Barrett Resources Corp.* 4,200 $ 179,025
Titan Exploration, Inc.* 2,600 31,200
------------
$ 210,225
- -----------------------------------------------------------------------------
Pollution Control - 0.8%
Republic Industries, Inc.* 200 $ 6,237
USA Waste Services, Inc.* 26,300 838,312
------------
$ 844,549
- -----------------------------------------------------------------------------
Printing and Publishing
Pulitzer Publishing Co. 1 $ 46
- -----------------------------------------------------------------------------
Railroads - 0.9%
Kansas City Southern Industries, Inc. 14,600 $ 657,000
Wisconsin Central Transportation Corp.* 7,900 313,038
------------
$ 970,038
- -----------------------------------------------------------------------------
Restaurants and Lodging - 6.2%
Applebee's International, Inc.* 22,100 $ 607,750
HFS, Inc.* 92,100 5,502,975
Promus Hotel Corp.* 5,900 174,787
Renaissance Hotel Group N.V.* 7,500 176,250
U.S. Franchise Systems, Inc., "A"* 500 5,063
------------
$ 6,466,825
- -----------------------------------------------------------------------------
Stores - 3.0%
BT Office Products International, Inc.* 1,700 $ 15,087
Corporate Express, Inc.* 26,400 777,150
General Nutrition Cos., Inc.* 20,600 347,625
Hollywood Entertainment, Corp.* 2,300 42,550
Linens "N" Things, Inc.* 3,500 68,688
Mazel Stores, Inc.* 300 6,750
Micro Warehouse, Inc.* 800 9,400
Office Depot, Inc.* 20,500 363,875
Staples, Inc.* 85,600 1,546,150
------------
$ 3,177,275
- -----------------------------------------------------------------------------
Telecommunications - 11.3%
3Com Corp.* 19,100 $ 1,401,462
Bay Networks, Inc.* 400 8,350
Cabletron Systems, Inc.* 56,400 1,875,300
Cisco Systems, Inc.* 69,500 4,421,938
Glenayre Technologies, Inc.* 40,800 879,750
Lucent Technologies, Inc. 11,100 513,375
Tel-Save Holdings, Inc.* 400 11,600
Worldcom, Inc.* 106,800 2,783,475
------------
$ 11,895,250
- -----------------------------------------------------------------------------
Total U.S. Stocks $ 91,206,998
- -----------------------------------------------------------------------------
Foreign Stocks - 4.8%
Canada - 0.9%
BioChem Pharma, Inc. (Medical and Health
Products)* 19,650 $ 987,413
- -----------------------------------------------------------------------------
Germany - 1.2%
SAP AG (Computer Software - Systems) 8,125 $ 1,118,540
SAP AG, ADR (Computer Software - Systems)## 3,300 152,212
------------
$ 1,270,752
- -----------------------------------------------------------------------------
Italy - 0.6%
Fila Holdings S.p.A., ADR (Apparel and Textiles) 10,150 $ 589,969
- -----------------------------------------------------------------------------
Netherlands - 0.1%
Gucci Group N.V. (Apparel and Textiles)* 1,500 $ 95,813
- -----------------------------------------------------------------------------
United Kingdom - 2.0%
Danka Business Systems PLC, ADR (Business
Services) 37,100 $ 1,312,412
Pace Micro Technology PLC (Electronics)* 194,000 764,418
------------
$ 2,076,830
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 5,020,777
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $94,818,903) $ 96,227,775
- -----------------------------------------------------------------------------
Rights
- -----------------------------------------------------------------------------
Thermo Fibergen, Inc. (Business Services)*
(Identified Cost, $12,234) 6,200 $ 15,500
- -----------------------------------------------------------------------------
Warrants - 2.4%
- -----------------------------------------------------------------------------
Intel Corp. (Electronics)* (Identified Cost,
$1,911,513) 26,800 $ 2,472,300
- -----------------------------------------------------------------------------
Convertible Bond
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Ventritex, Inc., 5.75s, 2001 (Medical and Health
Products) (Identified Cost, $20,000) $ 20 $ 30,925
- -----------------------------------------------------------------------------
Short-Term Obligations - 18.3%
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
due 1/06/97 - 1/30/97 $ 7,000 $ 6,962,672
Student Loan Marketing Assn., due 1/02/97 12,210 12,205,760
- -----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 19,168,432
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $115,931,082) $117,914,932
Other Assets, Less Liabilities - (12.4)% (12,958,628)
- -----------------------------------------------------------------------------
Net Assets - 100.0% $104,956,304
- -----------------------------------------------------------------------------
*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, $115,931,082) $117,914,932
Cash 6,202
Receivable for Series shares sold 1,277,098
Interest and dividends receivable 31,458
Receivable from investment adviser 61,869
Deferred organization expenses 6,546
Other assets 42
------------
Total assets $119,298,147
------------
Liabilities:
Payable for Series shares reacquired $ 561,351
Payable for investments purchased 13,706,027
Payable to affiliate for management fee 6,364
Accrued expenses and other liabilities 68,101
------------
Total liabilities $ 14,341,843
------------
Net assets $104,956,304
============
Net assets consist of:
Paid-in capital $103,393,432
Unrealized appreciation on investments 1,983,850
Accumulated net realized loss on investments and foreign
currency transactions (420,978)
------------
Total $104,956,304
============
Shares of beneficial interest outstanding 7,928,680
=========
Net asset value per share
(net assets of $104,956,304 / 7,928,680 shares of
beneficial interest outstanding) $13.24
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended December 31, 1996
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 351,048
Dividends 37,634
Foreign taxes withheld (1,125)
----------
Total investment income $ 387,557
----------
Expenses -
Management fee $ 314,262
Trustees' compensation 2,033
Shareholder servicing agent fee 14,380
Printing 65,001
Auditing fees 29,156
Custodian fee 17,940
Amortization of organization expenses 1,842
Legal fees 1,421
Miscellaneous 37,062
----------
Total expenses $ 483,097
Fees paid indirectly (1,120)
Reduction of expenses by investment adviser (62,962)
----------
Net expenses $ 419,015
----------
Net investment loss $ (31,458)
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 504,626
Foreign currency transactions (1,029)
----------
Net realized gain on investments and foreign currency
transactions $ 503,597
----------
Change in unrealized appreciation on investments $1,810,131
----------
Net realized and unrealized gain on investments and
foreign currency $2,313,728
----------
Increase in net assets from operations $2,282,270
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- ------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
<S> <C> <C>
From operations -
Net investment income (loss) $ (31,458) $ 877
Net realized gain on investments and foreign currency transactions 503,597 81,576
Net unrealized gain on investments 1,810,131 173,719
------------ -----------
Increase in net assets from operations $ 2,282,270 $ 256,172
------------ -----------
Distributions declared to shareholders -
From net investment income $ -- $ (877)
From net realized gain on investments and foreign currency transactions (503,597) (81,576)
In excess of net investment income -- (283)
In excess of net realized gain on investments and foreign currency
transactions (374,343) --
Tax return of capital -- (21,847)
------------ -----------
Total distributions declared to shareholders $ (877,940) $ (104,583)
------------ -----------
Series share (principal) transactions -
Net proceeds from sale of shares $149,594,616 $ 5,564,342
Net asset value of shares issued to shareholders in reinvestment of
distributions 877,940 104,583
Cost of shares reacquired (50,789,212) (1,960,484)
------------ -----------
Increase in net assets from Series share transactions $ 99,683,344 $ 3,708,441
------------ -----------
Total increase in net assets $101,087,674 $ 3,860,030
Net assets:
At beginning of period 3,868,630 8,600
------------ -----------
At end of period $104,956,304 $ 3,868,630
============ ===========
*For the period from the commencement of investment operations, July 24, 1995 to December 31, 1995.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -----------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
- -----------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C>
Net asset value - beginning of period $11.41 $10.00
------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.01) $ 0.01
Net realized and unrealized gain on investments and foreign currency
transactions 1.95 1.74
------ ------
Total from investment operations $ 1.94 $ 1.75
------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.01)
From net realized gain on investments and foreign currency
transactions (0.06) (0.26)
In excess of net realized gain on investments and foreign currency
transactions (0.05) --
Tax return of capital -- (0.07)
------ ------
Total distributions declared to shareholders $(0.11) $(0.34)
------ ------
Net asset value - end of period $13.24 $11.41
====== ======
Total return 17.02% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income (loss) (0.08)% 0.10%+
Portfolio turnover 96% 73%
Average commission rate### $0.0401 --
Net assets at end of period (000 omitted) $104,956 $3,869
*For the period from the commencement of investment operations, July 24, 1995 to December 31, 1995.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
###Average commission rate is calculated for Series' with fiscal years beginning on or after September 1, 1995.
(S)The adviser voluntarily agreed to maintain the expenses of the Series at not more than 1.00% of average daily
net assets. To the extent actual expenses were over these limitations, the net investment loss per share and
the ratios would have been:
Net investment loss $(0.03) $(0.18)
Ratios (to average net assets):
Expenses 1.16% 2.91%+
Net investment loss (0.23)% (1.78)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Emerging Growth 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 31 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 sales prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. Debt securities (other
than short-term obligations which mature in 60 days or less), including listed
issues, are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data,
without exclusive reliance upon exchange or over-the-counter prices. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith
by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Forward Foreign Currency Exchange Contracts - The Series may enter into
forward foreign currency exchange contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date. Risks may arise
upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Series will enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the Series may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The Series may also use
contracts in a manner intended to protect foreign currency-denominated
securities from declines in value due to unfavorable exchange rate movements.
For non-hedging purposes, the Series may enter into contracts with the intent
of changing the relative exposure of the Series' portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for financial statement
and tax reporting purposes as required by federal income tax regulations.
Dividend income is recorded on the ex-dividend date for dividends received in
cash. Dividend and interest payments received in additional securities are
recorded on the ex-dividend or ex-interest date in an amount equal to the
value of the security on such date.
Fees Paid Indirectly - The Series' custodian bank calculates its fee based on
the Series' average daily net assets. This fee is reduced according to an
expense offset arrangement with State Street Bank, the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Series with
the custodian and with the dividend disbursing agent. This amount is shown as
a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of
net investment income and net realized gain reported on these financial
statements may differ from that reported on the Series' tax return and,
consequently, the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders on Form
1099-DIV. Foreign taxes have been provided for on interest and dividend income
earned on foreign investments in accordance with the applicable country's tax
rates and to the extent unrecoverable are recorded as a reduction of
investment income. The Series expects to pass through to shareholders foreign
income taxes paid. The election increases the taxable distributions of the
Series by the amount of foreign taxes paid. An individual shareholder who
itemizes deductions, or a corporate shareholder, will be able to claim an
offsetting deduction or tax credit (but not both) on their federal income tax
returns. Individuals who do not itemize deductions may claim a foreign tax
credit but not a deduction. The foreign source income is considered passive
income for the purpose of computing the foreign tax credit limitations.
Distributions to shareholders are recorded on the ex-dividend date.
The Series distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return
of capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or accumulated net
realized gains. During the year ended December 31, 1996, $46,635 was
reclassified from accumulated net realized loss on investments and foreign
currency transactions and $15,177 and $31,458 were reclassified to paid-in
capital and accumulated net investment loss, respectively, due to differences
between book and tax accounting for reclass of net operating loss and currency
transactions. This change had no effect on the net assets or net asset value
per share. At December 31, 1996, accumulated net realized loss on investments
and foreign currency transactions under book accounting were different from
tax accounting due to temporary differences in accounting for wash sales.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75% of
average daily net assets. Under a temporary expense limitation agreement with
MFS, MFS has voluntarily agreed to pay all of the Series' operating expenses,
exclusive of management fees, which exceed 0.25% of 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 $78,621,
including $62,962 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
$128,473,774 and $35,416,621, 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 $115,931,082
============
Gross unrealized appreciation $ 6,064,316
Gross unrealized depreciation (4,080,466)
------------
Net unrealized appreciation $ 1,983,850
============
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Series shares were as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1996 December 31, 1995*
---------------------------------- -------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 11,363,299 $149,594,616 501,081 $ 5,564,342
Shares issued to shareholders in
reinvestment of distributions 66,160 877,940 9,255 104,583
Shares reacquired (3,839,801) (50,789,212) (172,174) (1,960,484)
---------- ------------ ------- -----------
Net increase 7,589,658 $ 99,683,344 338,162 $ 3,708,441
========== ============ ======= ===========
*For the period from the commencement of investment operations, July 24, 1995 to December 31, 1995.
</TABLE>
(6) Line of Credit
The Series entered into an agreement which enables it to participate with
other funds managed by MFS in an unsecured line of credit with a bank which
permits borrowings up to $350 million, collectively. Borrowings may be made to
temporarily finance the repurchase of Series shares. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate.
In addition, a commitment fee, based on the average daily unused portion of
the line of credit, is allocated among the participating funds at the end of
each quarter. The commitment fee allocated to the Series for the year ended
December 31, 1996 was $504.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS
Emerging Growth Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Emerging Growth Series (the
Series) (one of the series constituting the MFS Variable Insurance Trust) as
of December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets and financial highlights for
the year then ended and for the period from July 24, 1995 (the commencement of
investment operations) to December 31, 1995. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at December 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Emerging
Growth 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>
VEG 2/97 16.5M
