MFS VARIABLE INSURANCE TRUST, 485APOS, 1997-08-01

MFS VARIABLE INSURANCE TRUST
485APOS, 1997-08-01

Previous: WANDEL & GOLTERMANN TECHNOLOGIES INC, 10-Q, 1997-08-01

Next: KANSAS TAX EXEMPT TRUST SERIES 67, 485BPOS, 1997-08-01

<PAGE>

As filed with the Securities and Exchange Commission on August 1, 1997
1933 Act File No. 33-74668
1940 Act File No. 811-8326

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

POST-EFFECTIVE AMENDMENT NO. 8
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 9

MFS VARIABLE INSURANCE TRUST
(Exact name of registrant as specified in its charter)

500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)

Registrant's Telephone Number, Including Area Code: 617-954-5000
Stephen E. Cavan, Massachusetts Financial Services Company,
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)

[_] immediately upon filing pursuant to paragraph (b)

[_] on pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[_] on [date] pursuant to paragraph (a)(i)
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on [date] pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment

Pursuant to Rule 24f-2, the Registrant has registered an indefinite number of
its Shares of Beneficial Interest, without par value, under the Securities Act
of 1933. The Registrant filed a Rule 24f-2 Notice for its fiscal year ended
December 31, 1996 on February 28, 1997.

================================================================================
<PAGE>

MFS VARIABLE INSURANCE TRUST

MFS Emerging Growth Series
MFS Value Series
MFS Research Series
MFS Growth With Income Series
MFS Total Return Series
MFS Utilities Series
MFS High Income Series
MFS World Governments Series

MFS/Foreign & Colonial Emerging Markets Equity Series
MFS Bond Series
MFS Limited Maturity Series
MFS Money Market Series

Cross Reference Sheet
---------------------

(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)

<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>

1 (a),(b) Front Cover Page *

2 (a) Expense Summary *

(b),(c) * *

3 (a) Condensed Financial Information *

(b) * *

(d) Condensed Financial Information *
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>

4 (a) Front Cover Page; Investment *
Concept of the Trust;
Investment Objectives and
Policies; Investment Techniques

(b) Investment Objectives and *
Policies; Investment Techniques

5 (a) Investment Concept of the Trust; *
Management of the Series

(b) Management of the Series - *
Investment Adviser;
Back Cover Page

(d) Management of the Series - Management of the Trust -
Administrator Administrator

(e) Management of the Series - *
Shareholder Servicing Agent;
Back Cover Page

(f) Information Concerning Shares *
of Each Series - Expenses;
Condensed Financial
Information; Expense Summary

(g) Additional Risk Factors - *
Portfolio Trading

(h) * *

5A (a),(b),(c) ** **
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>

6 (a) Information Concerning Shares *
of Each Series - Description of
Shares, Voting Rights and
Liabilities; Information
Concerning Shares of Each
Series - Purchases and
Redemptions

(b) Information Concerning Shares *
of Each Series - Description of
Shares, Voting Rights and
Liabilities

(c),(d) * *

(e) Shareholder Communications *

(f) Information Concerning Shares *
of Each Series - Distributions;

(g) Information Concerning Shares *
of Each Series - Tax Status;
Information Concerning Shares
of Each Series - Distributions

(h) * *

7 (a) Management of the Series - *
Distributor; Back Cover Page

(b) Information Concerning Shares *
of Each Series - Purchases and
Redemptions; Information
Concerning Shares of Each
Series - Net Asset Value

(c),(d),(e),(f) * *

(g) * *
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>

8 (a),(b) Information Concerning Shares *
of Each Series - Purchases
and Redemptions

(d) Information Concerning Shares *
of Each Series - Purchases
and Redemptions

9 * *

10 (a), (b) * Front Cover Page

11 * Front Cover Page

12 * General Information
and Definitions

13 (a) * Investment Techniques

(b) * Investment Techniques;
Investment Restrictions

(d) Additional Risk Factors - *
Portfolio Trading

14 (a), (b) * Management of the Trust
- Trustees and
Officers

15 (a) * *

(b), (c) * Management of the Trust

</TABLE>
<PAGE>

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>
16 (a) Management of the Series - Management of the Trust -
Investment Adviser Investment Adviser;
Management of the Trust -
Trustees and Officers

(b) Management of the Series - Management of the Trust -
Investment Adviser; Investment Adviser
Expenses

(d) Management of the Series - Management of the Trust -
Administrator Administrator

(e) * Portfolio Transactions and
Brokerage Commissions

(f), (g) * *

(h) * Management of the Trust -
Custodian; Independent
Auditors and Financial
Statements; Back Cover Page

(i) * Management of the Trust -
Shareholder Servicing Agent

17 (a), (b), (c), * Portfolio Transactions and
(d), (e) Brokerage Commissions

18 (a) * Description of Shares, Voting
Rights and Liabilities

(b) * *

19 (a) * *

</TABLE>
<PAGE>

STATEMENT OF
ITEM NUMBER ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ----------------- ------------------ -------------------
<S> <C> <C>
(b) Information Concerning Shares Management of the Trust -
of Each Series - Net Asset Distributor; Determination
Value; Information Concerning of Net Asset Value;
Shares of Each Series - Performance Information -
Purchases and Redemptions Net Asset Value

20 * Tax Status

21 (a), (b) * Management of the Trust -
Distributor

22 (a), (b) * Determination of Net Asset
Value; Performance
Information

23 * Independent Auditors
and Financial Statements
</TABLE>

- --------------------
* Not Applicable
** Contained in Annual Report
<PAGE>

MFS(R) VARIABLE
INSURANCE TRUST PROSPECTUS
- -------------------------------------------------------------------------------
MFS(R) VARIABLE INSURANCE TRUSTSM
September 30, 1997

MFS Variable Insurance Trust (the "Trust") is an open-end management
investment company offering insurance company separate accounts a selection of
investment vehicles for variable annuity and variable life insurance contracts
(the "Contracts"). Currently the Trust offers shares of beneficial interest of
12 separate mutual fund series (individually or collectively hereinafter
referred to as a "Series" or the "Series"):

- --MFS EMERGING GROWTH SERIES (the "Emerging Growth Series"), which seeks to
provide long-term growth of capital;
- --MFS VALUE SERIES (the "Value Series"), which seeks capital appreciation;
- --MFS RESEARCH SERIES (the "Research Series"), which seeks to provide long-
term growth of capital and future income;
- --MFS GROWTH WITH INCOME SERIES (the "Growth With Income Series"), which seeks
to provide reasonable current income and long-term growth of capital and in-
come;
- --MFS TOTAL RETURN SERIES (the "Total Return Series"), which seeks primarily
to provide above-average income (compared to a portfolio invested entirely
in equity securities) consistent with the prudent employment of capital, and
secondarily to provide a reasonable opportunity for growth of capital and
income;
- --MFS UTILITIES SERIES (the "Utilities Series"), which seeks capital growth
and current income (income above that available from a portfolio invested
entirely in equity securities);
- --MFS HIGH INCOME SERIES (the "High Income Series"), which seeks high current
income by investing primarily in a professionally managed diversified port-
folio of fixed income securities, some of which may involve equity features;
- --MFS WORLD GOVERNMENTS SERIES (the "World Governments Series"), which seeks
not only preservation but also growth of capital, together with moderate
current income;

- --MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES (the "Emerging Markets
Equity Series"), which seeks capital appreciation;
- --MFS BOND SERIES (the "Bond Series"), which seeks primarily to provide as
high a level of current income as is believed consistent with prudent in-
vestment risk and secondarily to protect shareholders' capital;
- --MFS LIMITED MATURITY SERIES (the "Limited Maturity Series"), which seeks
primarily to provide as high a level of current income as is believed to be
consistent with prudent investment risk, and secondarily to protect share-
holders' capital; and
- --MFS MONEY MARKET SERIES (the "Money Market Series"), which seeks as high a
level of current income as is considered consistent with the preservation of
capital and liquidity.
----------------

THE HIGH INCOME SERIES MAY INVEST UP TO 100% OF ITS NET ASSETS IN LOWER RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD
CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING (SEE "ADDITIONAL RISK FAC-
TORS -- LOWER RATED BONDS"). THE EMERGING GROWTH SERIES, THE VALUE SERIES, THE
RESEARCH SERIES, THE GROWTH WITH INCOME SERIES AND THE EMERGING MARKETS EQUITY
SERIES ARE INTENDED FOR INVESTORS WHO UNDERSTAND AND ARE WILLING TO ACCEPT THE
RISKS ENTAILED IN SEEKING LONG-TERM GROWTH OF CAPITAL OR CAPITAL APPRECIATION.
BECAUSE OF THEIR INVESTMENT POLICIES PERMITTING INVESTMENT IN FOREIGN SECURI-
TIES, INVESTMENTS IN EACH SERIES (EXCEPT FOR THE LIMITED MATURITY SERIES AND
THE MONEY MARKET SERIES) MAY BE SUBJECT TO A GREATER DEGREE OF RISK THAN IN-
VESTMENTS IN OTHER INVESTMENT COMPANIES WHICH INVEST ENTIRELY IN DOMESTIC SE-
CURITIES.
----------------
<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------

INVESTMENTS IN THE MONEY MARKET SERIES ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE SERIES WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
----------------

SHARES OF THE TRUST ARE AVAILABLE AND ARE BEING MARKETED AS A POOLED FUNDING
VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF CONTRACTS.

This Prospectus sets forth concisely the information about each Series that a
prospective investor should know before applying for the Contracts offered by
the separate accounts of certain insurance companies ("Participating Insurance
Companies"). Investors are advised to read this Prospectus and the applicable
Contract prospectus carefully and retain them for future reference. The
Series' investment adviser and distributor are Massachusetts Financial
Services Company ("MFS" or the "Adviser") and MFS Fund Distributors, Inc.
("MFD"), respectively, both of which are located at 500 Boylston Street,
Boston, Massachusetts 02116. The Emerging Markets Equity Series also has
retained as its sub-advisers Foreign & Colonial Management Ltd. and Foreign &
Colonial Emerging Markets Limited (collectively, the "Sub-Adviser"), both of
which are located at Exchange House, Primrose Street, London EC2A 2NY, United
Kingdom. If you require more detailed information, a Statement of Additional
Information dated September 30, 1997, as amended or supplemented from time to
time ("SAI"), is available upon request without charge and may be obtained by
calling or by writing to the Shareholder Servicing Agent (see back cover for
address and phone number). The SAI, which is incorporated by reference into
this Prospectus, has been filed with the Securities and Exchange Commission
(the "SEC"). The SEC maintains an Internet World Wide Web site
(http://www.sec.gov) that contains the SAI, materials that are incorporated by
reference into this Prospectus and the SAI, and other information regarding
the Series. This Prospectus is available on the Adviser's Internet World Wide
Web site at http://www.mfs.com.

INVESTORS SHOULD READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Expense Summary........................................................ 4
2. Investment Concept of the Trust........................................ 5
3. Condensed Financial Information........................................ 6
4. Investment Objectives and Policies..................................... 17
MFS Emerging Growth Series........................................... 17
MFS Value Series..................................................... 18
MFS Research Series.................................................. 18
MFS Growth With Income Series........................................ 19
MFS Total Return Series.............................................. 19
MFS Utilities Series................................................. 20
MFS High Income Series............................................... 21
MFS World Governments Series......................................... 22
MFS/Foreign & Colonial Emerging Markets Equity Series................ 24
MFS Bond Series...................................................... 24
MFS Limited Maturity Series.......................................... 25
MFS Money Market Series.............................................. 26
5. Investment Techniques.................................................. 27
6. Additional Risk Factors................................................ 36
7. Management of the Series............................................... 41
8. Information Concerning Shares of Each Series........................... 45
Purchases and Redemptions............................................ 45
Net Asset Value...................................................... 45
Distributions........................................................ 45
Tax Status........................................................... 46
Description of Shares, Voting Rights and Liabilities................. 46
Performance Information.............................................. 47
Expenses............................................................. 48
Shareholder Communications........................................... 48
Appendix A -- Description of Bond Ratings................................. A-1
Appendix B -- Principal Sectors of the Utilities Industry................. B-1
Appendix C -- Portfolio Composition Charts................................ C-1
</TABLE>

3
<PAGE>

1.EXPENSE SUMMARY

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):

<TABLE>
<CAPTION>
MFS
EMERGING MFS MFS GROWTH
GROWTH MFS VALUE RESEARCH WITH INCOME
SERIES SERIES SERIES SERIES
--------- --------- -------- -----------
<S> <C> <C> <C> <C>
Management Fee................... 0.75% 0.75% 0.75% 0.75%
Other Expenses (after expense
limitation)(/1/)(/2/)........... 0.25% 0.25% 0.25% 0.25%
---- ---- ---- ----
Total Operating Expenses (after
expense limitation)(/2/)........ 1.00% 1.00% 1.00% 1.00%
<CAPTION>
MFS TOTAL MFS MFS HIGH MFS WORLD
RETURN UTILITIES INCOME GOVERNMENTS
SERIES SERIES SERIES SERIES
--------- --------- -------- -----------
<S> <C> <C> <C> <C>
Management Fee................... 0.75% 0.75% 0.75% 0.75%
Other Expenses (after expense
limitation)(/1/)(/2/)........... 0.25% 0.25% 0.25% 0.25%
---- ---- ---- ----
Total Operating Expenses (after
expense limitation)(/2/)........ 1.00% 1.00% 1.00% 1.00%
<CAPTION>
MFS/
FOREIGN &
COLONIAL
EMERGING MFS
MARKETS LIMITED MFS MONEY
EQUITY MFS BOND MATURITY MARKET
SERIES SERIES SERIES SERIES
--------- --------- -------- -----------
<S> <C> <C> <C> <C>
Management Fee................... 1.25% 0.60% 0.55% 0.50%
Other Expenses (after expense
limitation)(/1/)(/2/)........... 0.25% 0.40% 0.45% 0.10%
---- ---- ---- ----
Total Operating Expenses (after
expense limitation)(/2/)........ 1.50% 1.00% 1.00% 0.60%
</TABLE>
- --------------------
/1/ Each Series has an expense offset arrangement which reduces the Series' cus-
todian fee based upon the amount of cash maintained by the Series with its
custodian and dividend disbursing agent, and may enter into other such ar-
rangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."

/2/ The Adviser has agreed to bear expenses for each Series, subject to reim-
bursement by each Series, such that each Series' "Other Expenses" shall not
exceed the following percentages of the average daily net assets of the Se-
ries during the current fiscal year: 0.40% for the Bond Series, 0.45% for
the Limited Maturity Series, 0.10% for the Money Market Series, and 0.25%
for each remaining Series. See "Information Concerning Shares of Each Se-
ries--Expenses." Otherwise, "Other Expenses" and "Total Operating Expenses"
for each Series would be:
<TABLE>
<CAPTION>
"OTHER EXPENSES" "TOTAL OPERATING
WITHOUT EXPENSES" WITHOUT
SERIES EXPENSE LIMITATION EXPENSE LIMITATION
------ ------------------ ------------------
<S> <C> <C>
Emerging Growth................... 0.41% 1.16%
Value............................. 3.08% 3.83%
Research.......................... 0.73% 1.48%
Growth With Income................ 1.32% 2.07%
Total Return...................... 1.35% 2.10%
Utilities......................... 2.00% 2.75%
High Income....................... 0.87% 1.62%
World Governments................. 1.28% 2.03%
Emerging Markets Equity
(estimate)....................... 0.48% 1.73%
Bond.............................. 8.85% 9.45%
Limited Maturity.................. 7.00% 7.55%
Money Market...................... 27.24% 27.74%
</TABLE>

The purpose of the expense table above is to assist investors in understand-
ing the various costs and expenses that a shareholder of the Series will bear
directly or indirectly. The Series' annual operating expenses do not reflect

4
<PAGE>

expenses imposed by separate accounts of Participating Insurance Companies
through which an investment in a Series is made or their related Contracts. A
separate account's expenses are disclosed in the prospectus through which the
Contract relating to that separate account is offered for sale.

2.INVESTMENT CONCEPT OF THE TRUST

The Trust is an open-end, registered management investment company comprised
of the following twelve series: Emerging Growth Series, Value Series, Research
Series, Growth With Income Series, Total Return Series, Utilities Series, High
Income Series, World Governments Series, Emerging Markets Equity Series, Bond
Series, Limited Maturity Series and Money Market Series. Each Series is a seg-
regated, separately managed portfolio of securities. All of the Series, except
the Utilities Series and the World Governments Series, are diversified. Addi-
tional series may be created from time to time. The Trust was organized as a
business trust under the laws of The Commonwealth of Massachusetts by a Decla-
ration of Trust dated February 1, 1994.

The Trust currently offers shares of each Series to insurance company sepa-
rate accounts that fund Contracts. Separate accounts may purchase or redeem
shares at net asset value without any sales or redemption charge. Fees and
charges imposed by a separate account, however, will affect the actual return
to the holder of a Contract. A separate account may also impose certain re-
strictions or limitations on the allocation of purchase payments or Contract
value to one or more Series, and not all Series may be available in connection
with a particular Contract. Prospective investors should consult the applica-
ble Contract prospectus for information regarding fees and expenses of the
Contract and separate account and any applicable restrictions or limitations.
The Trust assumes no responsibility for such prospectuses.

Shares of the Series are offered to the separate accounts of Participating
Insurance Companies that are affiliated or unaffiliated ("shared funding").
Shares of the Series may serve as the underlying investments for both variable
annuity and variable life insurance contracts ("mixed funding"). Due to dif-
ferences in tax treatment or other considerations, the interests of various
Contract owners might at some time be in conflict. The Trust currently does
not foresee any such conflict. Nevertheless, the Trust's Trustees intend to
monitor events in order to identify any material irreconcilable conflicts
which may possibly arise and to determine what action, if any, should be taken
in response thereto. If such a conflict were to occur, one or more separate
accounts of the Participating Insurance Companies might be required to with-
draw its investments in one or more Series. This might force a Series to sell
securities at disadvantageous prices.

Individual Contract holders are not the "shareholders" of the Trust. Rather,
the Participating Insurance Companies and their separate accounts are the
shareholders or investors, although such companies may pass through voting
rights to their Contract holders.

The Trust's Board of Trustees provides broad supervision over the affairs of
the Trust and the Series. MFS, a Delaware corporation, is the investment ad-
viser to each Series. A majority of the Trustees of the Trust are not affili-
ated with the Adviser. The Adviser is responsible for the management of the
assets of each Series and the officers of the Trust are responsible for the
operations. The Adviser manages the Series' portfolios from day to day in ac-
cordance with the investment objectives and policies of each Series. The se-
lection of investments and the way they are managed depend on the conditions
and trends in the economy and the financial marketplaces.

5
<PAGE>

3.CONDENSED FINANCIAL INFORMATION

The following financial information (presented for each Series which com-
menced investment operations prior to December 31, 1996) has been audited
since the commencement of investment operations of such Series and should be
read in conjunction with the financial statements included in the Series' An-
nual Reports to Shareholders. These financial statements are incorporated by
reference into the SAI in reliance upon the report of the Series' independent
auditors given upon their authority as experts in accounting and auditing. The
Series' current independent auditors are Deloitte & Touche llp. The Emerging
Markets Equity Series had not commenced investment operations prior to Decem-
ber 31, 1996.

EMERGING GROWTH SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
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
</TABLE>
- --------------------
* 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 begin-
ning 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 ra-
tios would have been:

<TABLE>
<S> <C> <C>
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>

6
<PAGE>

VALUE SERIES

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1996*
------------------
<S> <C>
Per share data (for a share outstanding throughout the
period):
Net asset value--beginning of period........................ $ 10.00
-------
Income from investment operations#--
Net investment income(S)................................... $ 0.07
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 0.88
-------
Total from investment operations.......................... $ 0.95
-------
Less distributions declared to shareholders--
From net investment income................................. $ (0.03)
From net realized gain on investments and foreign currency
transactions.............................................. (0.21)
In excess of net realized gain on investments and foreign
currency transactions..................................... (0.01)
Tax return of capital...................................... (0.04)
-------
Total distributions declared to shareholders.............. $ (0.29)
-------
Net asset value--end of period.............................. $ 10.66
=======
Total return................................................ 8.78%++
Ratios (to average net assets)/Supplemental data(S):
Expenses................................................... 1.00%+
Net investment income...................................... 1.72%+
Portfolio turnover.......................................... 44%
Average commission rate..................................... $0.0204
Net assets at end of period (000 omitted)................... $ 1,351
</TABLE>
- --------------------
* For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment loss per share and the ra-
tios would have been:

<TABLE>
<S> <C>
Net investment loss........................... $(0.04)
Ratios (to average net assets):
Expenses..................................... 3.83%+
Net investment loss.......................... (1.11)%+
</TABLE>

7
<PAGE>

RESEARCH SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 10.89 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................. $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 2.37 1.01
------- ------
Total from investment operations........ $ 2.43 $ 1.06
------- ------
Less distributions declared to
shareholders--
From net investment income............... $ (0.02) $(0.03)
From net realized gain on investments and
foreign currency transactions........... (0.16) (0.14)
In excess of net realized gain on
investments and foreign currency
transactions............................ (0.01) --
------- ------
Total distributions declared to
shareholders........................... $ (0.19) $(0.17)
------- ------
Net asset value--end of period............ $ 13.13 $10.89
======= ======
Total return.............................. 22.33% 10.62%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income.................... 0.47% 1.15%+
Portfolio turnover........................ 56% 28%
Average commission rate###................ $0.0295 --
Net assets at end of period (000
omitted)................................. $35,710 $2,530
</TABLE>
- --------------------
* For the period from the commencement of investment operations, July 26,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment loss per share and
the ratios would have been:

<TABLE>
<S> <C> <C>
Net investment loss................. -- $(0.08)
Ratios (to average net assets):
Expenses........................... 1.48% 3.90%+
Net investment loss................ -- (1.73)%+
</TABLE>

8
<PAGE>

GROWTH WITH INCOME SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
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
</TABLE>
- --------------------
* 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 commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment income (loss) per
share and the ratios would have been:

<TABLE>
<S> <C> <C>
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)%+
</TABLE>

9
<PAGE>

TOTAL RETURN SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 12.25 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................. $ 0.46 $ 0.41
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 1.30 2.32
------- ------
Total from investment operations........ $ 1.76 $ 2.73
------- ------
Less distributions declared to
shareholders--
From net investment income............... $ (0.21) $(0.25)
From net realized gain on investments and
foreign currency transactions........... (0.09) (0.23)
------- ------
Total distributions declared to
shareholders........................... $ (0.30) $(0.48)
------- ------
Net asset value--end of period............ $ 13.71 $12.25
======= ======
Total return.............................. 14.37% 27.34%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income.................... 3.59% 3.83%+
Portfolio turnover........................ 76% 16%
Average commission rate###................ $0.0485 --
Net assets at end of period (000
omitted)................................. $19,250 $2,797
</TABLE>
- --------------------
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment income per share and
the ratios would have been:

<TABLE>
<S> <C> <C>
Net investment income............... $0.32 $0.22
Ratios (to average net assets):
Expenses........................... 2.10% 2.49%+
Net investment income.............. 2.49% 2.09%+
</TABLE>

10
<PAGE>

UTILITIES SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period...... $ 12.57 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................. $ 0.55 $ 0.39
Net realized and unrealized gain on
investments and foreign currency
transactions............................ 1.78 3.00
------- ------
Total from investment operations........ $ 2.33 $ 3.39
------- ------
Less distributions declared to
shareholders--
From net investment income............... $ (0.35) $(0.24)
From net realized gain on investments and
foreign currency transactions........... (0.88) (0.58)
In excess of realized gain on investments
and foreign currency transactions....... (0.01) --
------- ------
Total distributions declared to
shareholders........................... $ (1.24) $(0.82)
------- ------
Net asset value--end of period............ $ 13.66 $12.57
======= ======
Total return.............................. 18.51% 33.94%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................. 1.00% 1.00%+
Net investment income.................... 4.19% 3.66%+
Portfolio turnover........................ 121% 94%
Average commission rate###................ $0.0416 --
Net assets at end of period (000
omitted)................................. $ 9,572 $2,373
</TABLE>
- --------------------
* For the period from the commencement of investment operations, January 3,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at
not more than 1.00% of average daily net assets. To the extent actual ex-
penses were over these limitations, the net investment income per share and
the ratios would have been:

<TABLE>
<S> <C> <C>
Net investment income............... $0.32 $0.17
Ratios (to average net assets):
Expenses........................... 2.75% 3.08%+
Net investment income.............. 2.44% 1.62%+
</TABLE>

11
<PAGE>

HIGH INCOME SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period..... $ 10.29 $10.00
------- ------
Income from investment operations#--
Net investment income(S)................ $ 0.89 $ 0.34
Net realized and unrealized gain on
investments............................ 0.32 0.18
------- ------
Total from investment operations....... $ 1.21 $ 0.52
------- ------
Less distributions declared to
shareholders--
From net investment income.............. $ (0.53) $(0.23)
From net realized gain on investments... (0.10) --
------- ------
Total distributions declared to
shareholders.......................... $ (0.63) $(0.23)
------- ------
Net asset value--end of period........... $ 10.87 $10.29
======= ======
Total return............................. 11.80% 5.25%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................ 1.00% 1.00%+
Net investment income................... 8.18% 8.17%+
Portfolio turnover....................... 135% 32%
Net assets at end of period (000
omitted)................................ $12,994 $1,946
</TABLE>
- --------------------
* For the period from the commencement of investment operations, July 26, 1995
to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the ra-
tios would have been:

<TABLE>
<S> <C> <C>
Net investment income.............. $0.82 $0.20
Ratios (to average net assets):
Expenses.......................... 1.62% 4.38%+
Net investment income............. 7.56% 4.82%+
</TABLE>

12
<PAGE>

WORLD GOVERNMENTS SERIES

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994*
----------------- ----------------- ------------------
<S> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $ 10.17 $ 9.82 $10.00
------- ------ ------
Income from investment
operations#--
Net investment
income(S)............. $ 0.60 $ 0.63 $ 0.17
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.19) 0.78 (0.09)
------- ------ ------
Total from investment
operations........... $ 0.41 $ 1.41 $ 0.08
------- ------ ------
Less distributions
declared to
shareholders--
From net investment
income................ $ -- $(0.42) $(0.17)
In excess of net
investment income..... -- (0.54) (0.09)
Tax return of capital.. -- (0.10) --
------- ------ ------
Total distributions
declared to
shareholders......... $ -- $(1.06) $(0.26)
------- ------ ------
Net asset value--end of
period................. $ 10.58 $10.17 $ 9.82
======= ====== ======
Total return............ 4.03% 14.38% 0.79%++
Ratios (to average net
assets)/Supplemental
data(S):
Expenses............... 1.00% 1.00% 1.00%+
Net investment income.. 5.84% 6.05% 4.68%+
Portfolio turnover...... 361% 211% 62%
Net assets at end of
period (000 omitted)... $26,023 $7,424 $2,881
</TABLE>
- --------------------
* For the period from the commencement of investment operations, June 14, 1994
to December 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the ra-
tios would have been:

<TABLE>
<S> <C> <C> <C>
Net investment
income.............. $0.50 $0.53 $0.16
Ratios (to average
net assets):
Expenses............ 2.03% 1.99% 1.10%+
Net investment
income............. 4.81% 5.09% 4.58%+
</TABLE>

13
<PAGE>

BOND SERIES

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
----------------- ------------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value--beginning of period..... $10.19 $ 10.00
------ -------
Income from investment operations#--
Net investment income(S)................ $ 0.58 $ 0.09
Net realized and unrealized gain (loss)
on investments......................... (0.36) 0.21
------ -------
Total from investment operations....... $ 0.22 $ 0.30
------ -------
Less distributions declared to
shareholders--
From net investment income.............. $(0.35) $ (0.09)
From net realized gain on investments... -- (0.02)
------ -------
Total distributions declared to
shareholders.......................... $(0.35) $ (0.11)
------ -------
Net asset value--end of period........... $10.06 $ 10.19
====== =======
Total return............................. 2.09% 3.02%++
Ratios (to average net
assets)/Supplemental data(S):
Expenses................................ 1.00% 1.00%+
Net investment income................... 5.84% 4.89%+
Portfolio turnover....................... 231% 55%
Net assets at end of period (000
omitted)................................ $ 853 $ 228
</TABLE>
- --------------------
* For the period from the commencement of investment operations, October 24,
1995 to December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment loss per share and the ra-
tios would have been:

<TABLE>
<S> <C> <C>
Net investment loss................... $(0.26) $ (0.70)
Ratios (to average net assets):
Expenses............................. 9.45% 43.85%+
Net investment loss.................. (2.61)% (37.96)%+
</TABLE>

14
<PAGE>

LIMITED MATURITY SERIES

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1996*
------------------
<S> <C>
Per share data (for a share outstanding throughout the
period):
Net asset value--beginning of period........................ $10.00
------
Income from investment operations#--
Net investment income(S)................................... $ 0.25
Net realized and unrealized gain on investments and foreign
currency transactions..................................... 0.01
------
Total from investment operations.......................... $ 0.26
------
Less distributions declared to shareholders--
From net investment income................................. $(0.25)
------
Net asset value--end of period.............................. $10.01
======
Total return................................................ 2.61%++
Ratios (to average net assets)/Supplemental data(S):
Expenses................................................... 1.00%+
Net investment income...................................... 6.61%+
Portfolio turnover.......................................... 109%
Average commission rate..................................... --
Net assets at end of period (000 omitted)................... $ 523
</TABLE>
- --------------------
* For the period from the commencement of investment operations, August 14,
1996 to December 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
(S) The Adviser voluntarily agreed to maintain the expenses of the Series at not
more than 1.00% of average daily net assets. To the extent actual expenses
were over these limitations, the net investment income per share and the ra-
tios would have been:

<TABLE>
<S> <C>
Net investment income............................ $0.01
Ratios (to average net assets):
Expenses........................................ 7.55%+
Net investment income........................... 0.06%+
</TABLE>

15
<PAGE>

MONEY MARKET SERIES

<TABLE>
<S> <C> <C>
Net investment loss................. $ (0.21) $ (0.14)
Ratios (to average net assets):
Expenses........................... 27.74% 21.54%+
Net investment loss................ (22.61)% (16.37)%+
</TABLE>

16
<PAGE>

4.INVESTMENT OBJECTIVES AND POLICIES

Each Series has different investment objectives which it pursues through
separate investment policies, as described below. The differences in objec-
tives and policies among the Series can be expected to affect the degree of
market and financial risk to which each Series is subject and the return of
each Series. The investment objectives and policies of each Series may, unless
otherwise specifically stated, be changed by the Trustees of the Trust without
a vote of the shareholders. Any investment involves risk and there is no as-
surance that the objectives of any Series will be achieved.

In addition to the specific investment practices described below, each Se-
ries may also engage in certain investment techniques as described under the
caption "Investment Techniques" below and in the SAI under the caption "In-
vestment Techniques." The Series' investments are subject to certain risks, as
described in the above-referenced sections of this Prospectus and the SAI and
as described below under the caption "Additional Risk Factors."

MFS EMERGING GROWTH SERIES -- The Series seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of capital.

The Series' policy is to invest primarily (i.e., at least 80% of its assets
under normal circumstances) in common stocks of companies that MFS believes
are early in their life cycle but which have the potential to become major en-
terprises (emerging growth companies). Such companies generally would be ex-
pected to show earnings growth over time that is well above the growth rate of
the overall economy and the rate of inflation, and would have the products,
technologies, management and market and other opportunities which are usually
necessary to become more widely recognized as growth companies. Emerging
growth companies can be of any size, and the Series may invest in larger or
more established companies whose rates of earnings growth are expected to ac-
celerate because of special factors, such as rejuvenated management, new prod-
ucts, changes in consumer demand, or basic changes in the economic environ-
ment. While the Series will invest primarily in common stocks, the Series may,
to a limited extent, seek appreciation in other types of securities such as
fixed income securities (which may be unrated), convertible securities and
warrants when relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic environments.
The Series may invest in non-convertible fixed income securities rated lower
than "investment grade" (rated Ba or lower by Moody's Investors Service, Inc.
("Moody's") or BB or lower by Standard & Poor's Ratings Services ("S&P") or
Fitch Investors Service, Inc. ("Fitch")) (commonly known as "junk bonds") or
in comparable unrated securities, when, in the opinion of the Adviser, such an
investment presents a greater opportunity for appreciation with comparable
risk to an investment in "investment grade" securities. Under normal market
conditions, the Series will invest not more than 5% of its net assets in these
securities. For a description of these ratings, see Appendix A to this Pro-
spectus.

The nature of investing in emerging growth companies involves greater risk
than is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or finan-
cial resources, and they may be dependent on one-person management. In addi-
tion, there may be less research available on many promising small and medium
sized emerging growth companies, making it more difficult to find and analyze
these companies. The securities of emerging growth companies may have limited
marketability and may be subject to more abrupt or erratic market movements
than securities of larger, more established growth companies or the market av-
erages in general. Shares of the Series, therefore, are subject to greater
fluctuation in value than shares of a conservative equity fund or of a growth
fund which invests entirely in proven growth stocks.

Consistent with its investment objective and policies described above, the
Series may also invest up to 25% (and generally expects to invest not more
than 15%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.

17
<PAGE>

MFS VALUE SERIES -- The Value Series' investment objective is to seek capital
appreciation. Dividend income, if any, is a consideration incidental to the
Series' objective of capital appreciation.

While the Series' policy is to invest primarily in common stocks, it may
seek appreciation in other types of securities such as fixed income securities
(which may be unrated), convertible securities and warrants when relative val-
ues make such purchases appear attractive either as individual issues or as
types of securities in certain economic environments. The Series may invest in
non-convertible fixed income securities rated lower than "investment grade"
(rated Ba or lower by Moody's or BB or lower by S&P or Fitch) (commonly known
as "junk bonds") or in comparable unrated securities, when, in the opinion of
the Adviser, such an investment presents a greater opportunity for apprecia-
tion with comparable risk to an investment in "investment grade" securities.
Under normal market conditions, the Series will invest not more than 25% of
its net assets in these securities. For a description of these ratings, see
Appendix A to this Prospectus.

Consistent with its investment objective and policies described above, the
Series may also invest up to 50% (and generally expects to invest not more
than 25%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange. There is
no formula as to the percentage of assets that may be invested in any one type
of security. Cash, commercial paper, short-term obligations, repurchase agree-
ments or debt securities are held to provide for future purchases of common
stock or other securities and may also be held as a temporary defensive meas-
ure when the Adviser determines security markets to be overvalued.

MFS RESEARCH SERIES -- The Research Series' investment objective is to provide
long-term growth of capital and future income.

The portfolio securities of the Research Series are selected by a committee
of investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly owned subsidiary of MFS. The Series' assets are allocated among in-
dustries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the Series' investment objective within their assigned industry responsi-
bility.

The Research Series' policy is to invest a substantial proportion of its as-
sets in equity securities of companies believed to possess better than average
prospects for long-term growth. Equity securities in which the Series may in-
vest include the following: common stocks, preferred stocks and preference
stocks; securities such as bonds, warrants or rights that are convertible into
stocks; and depositary receipts for those securities. These securities may be
listed on securities exchanges, traded in various over-the-counter markets or
have no organized markets. A smaller proportion of the assets may be invested
in bonds, short-term obligations, preferred stocks or common stocks whose
principal characteristic is income production rather than growth. Such securi-
ties may also offer opportunities for growth of capital as well as income. In
the case of both growth stocks and income issues, emphasis is placed on the
selection of progressive, well-managed companies. The Series' non-convertible
debt investments, if any, may consist of "investment grade" securities (rated
Baa or better by Moody's or BBB or better by S&P or by Fitch), and, with re-
spect to no more than 10% of the Series' net assets, securities in the lower
rated categories (rated Ba or lower by Moody's or BB or lower by S&P or by
Fitch) or securities which the Adviser believes to be of similar quality to
these lower rated securities (commonly known as "junk bonds"). For a descrip-
tion of bond ratings, see Appendix A to this Prospectus.

Consistent with its investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities (in-
cluding emerging market securities) which are not traded on a U.S. exchange.

18
<PAGE>

MFS GROWTH WITH INCOME SERIES -- The Growth With Income Series' investment ob-
jectives are to provide reasonable current income and long-term growth of cap-
ital and income.

Under normal market conditions, the Growth With Income Series will invest at
least 65% of its assets in equity securities of companies that are believed to
have long-term prospects for growth and income. Equity securities in which the
Series may invest include the following: common stocks, preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are con-
vertible into stocks; and depositary receipts for those securities. These se-
curities may be listed on securities exchanges, traded in various over-the-
counter markets or have no organized markets.

Consistent with its investment objective and policies described above, the
Series may also invest up to 75% (and generally expects to invest not more
than 15% ) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange.

MFS TOTAL RETURN SERIES -- The Total Return Series' primary investment objec-
tive is to provide above-average income (compared to a portfolio invested en-
tirely in equity securities) consistent with the prudent employment of capi-
tal, and its secondary objective is to provide a reasonable opportunity for
growth of capital and income, since many securities offering a better than av-
erage yield may also possess growth potential. Thus, in selecting securities
for its portfolio, the Series considers each of these objectives. Under normal
market conditions, at least 25% of the Total Return Series' assets will be in-
vested in non-convertible fixed income securities, and at least 40% and no
more than 75% of the Series' assets will be invested in equity securities. Eq-
uity securities in which the Series may invest include the following: common
stocks, preferred stocks and preference stocks; securities such as bonds, war-
rants or rights that are convertible into stocks; and depositary receipts for
those securities. These securities may be listed on securities exchanges,
traded in various over-the-counter markets or have no organized markets.

The Series' policy is to invest in a broad list of securities, including
short-term obligations. The list may be diversified not only by companies and
industries, but also by type of security. The Total Return Series may vary the
percentage of assets invested in any one type of security in accordance with
the Adviser's interpretation of economic and money market conditions, fiscal
and monetary policy and underlying security values. The Series' non-convert-
ible fixed income investments may consist of both "investment grade" securi-
ties (rated Baa or better by Moody's or BBB or better by S&P or by Fitch) and
securities that are unrated or are in the lower rating categories (rated Ba or
lower by Moody's or BB or lower by S&P or by Fitch) (commonly known as "junk
bonds") including up to 20% of its assets in non-convertible fixed income se-
curities that are in these lower rating categories and comparable unrated se-
curities (see "Additional Risk Factors" below). Generally, most of the Series'
long-term non-convertible fixed income investments will consist of "investment
grade" securities. See Appendix A to this Prospectus for a description of
these ratings.

The Series may also invest in United States government securities, includ-
ing: (1) U.S. Treasury obligations, which differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less); U.S. Treasury notes (maturities of one to ten years); and U.S. Trea-
sury bonds (generally maturities of greater than ten years), all of which are
backed by the full faith and credit of the U.S. Government; and (2) obliga-
tions issued or guaranteed by U.S. Government agencies, authorities or instru-
mentalities, some of which are backed by the full faith and credit of the U.S.
Treasury, e.g., direct pass-through certificates of the Government National
Mortgage Association ("GNMA"); some of which are supported by the right of the
issuer to borrow from the U.S. Government, e.g., obligations of Federal Home
Loan Banks; and some of which are backed only by the credit of the issuer it-
self, e.g., obligations of the Student Loan Marketing Association (collective-
ly, "U.S. Government Securities"). The term "U.S. Government Securities" also
includes interests in trusts or other entities representing interests in obli-
gations that are

19
<PAGE>

backed by the full faith and credit of the U.S. Government or are issued or
guaranteed by the U.S. Government, its agencies, authorities or instrumentali-
ties.

MFS UTILITIES SERIES -- The Utilities Series' investment objective is to seek
capital growth and current income (income above that available from a portfo-
lio invested entirely in equity securities).

The Utilities Series will seek to achieve its objective by investing, under
normal circumstances, at least 65% (but up to 100% at the discretion of the
Adviser) of its assets in equity and debt securities of both domestic and for-
eign companies in the utilities industry. Equity securities in which the Se-
ries may invest include the following: common stocks; preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are con-
vertible into stocks; and depositary receipts for those securities. These se-
curities may be listed on securities exchanges, traded in various over-the-
counter markets or have no organized markets. At least 80% of the non-convert-
ible fixed income securities held by the Series will be rated at the time of
investment at least Baa by Moody's or BBB by S&P or by Fitch or will be of
comparable quality as determined by the Adviser (see "Additional Risk Factors"
below). See Appendix A to this Prospectus for a description of these ratings.
The Series may also invest in debt and equity securities of issuers in other
industries, as discussed below, although under normal circumstances not more
than 35% of the Series' assets will be so invested. In addition, the Series
may hold a portion of its assets in cash and money market instruments.

Companies in the utilities industry include (i) companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electric, gas or other types of energy, water or other sanitary services and
(ii) companies engaged in telecommunications, including telephone, cellular
telephones, telegraph, satellite, microwave, cable television and other commu-
nications media (but not companies engaged in public broadcasting). The Ad-
viser deems a particular company to be in the utilities industry if, at the
time of investment, the Adviser determines that at least 50% of the company's
assets or revenues are derived from one or more of those industries. The por-
tion of the Utilities Series' assets invested in a particular type of utility
and in equity or debt securities will vary in light of changes in interest
rates, market conditions and economic conditions and other factors. For fur-
ther information on the principal sectors of the utilities industry in which
the Series may invest, see Appendix B to this Prospectus.

Consistent with its investment objective and policies described above, the
Series may also invest up to 35% of its net assets in foreign securities (in-
cluding emerging market securities and Brady Bonds) which are not traded on a
U.S. exchange.

Since the Utilities Series' investments are concentrated in utility securi-
ties, the value of the Series' shares will be especially affected by factors
peculiar to the utilities industry, and may fluctuate more widely than the
value of shares of a fund that invests in a broader range of industries. The
rates many utility companies may charge their customers are controlled by gov-
ernmental regulatory commissions which may result in a delay in the utility
company passing along increases in costs to its customers. Furthermore, there
is no assurance that regulatory authorities will, in the future, grant rate
increases or that such increases will be adequate to permit the payment of
dividends on common stocks. Many utility companies, especially electric and
gas and other energy related utility companies, are subject to various uncer-
tainties, including: risks of increases in fuel and other operating costs; the
high cost of borrowing to finance capital construction during inflationary pe-
riods; difficulty obtaining adequate returns on invested capital, even if fre-
quent rate increases are approved by public service commissions; restrictions
on operations and increased costs and delays as a result of environmental and
nuclear safety regulations; securing financing for large construction projects
during an

20
<PAGE>

inflationary period; difficulties of the capital markets in absorbing utility
debt and equity securities; difficulty in raising capital in adequate amounts
on reasonable terms in periods of high inflation and unsettled capital mar-
kets; technological innovations which may render existing plants, equipment or
products obsolete; the potential impact of natural or man-made disasters; dif-
ficulties in obtaining natural gas for resale or fuel for electric generation
at reasonable prices; coping with the general effects of energy conservation,
particularly in light of changing policies regarding energy; and special risks
associated with the construction and operation of nuclear power generating fa-
cilities, including technical factors and costs, and the possibility that fed-
eral, state and municipal government authorities may from time to time review
existing requirements and impose additional requirements. Certain utility com-
panies, especially gas and telephone utility companies, have in recent years
been affected by increased competition, which could adversely affect the prof-
itability of such utility companies. Furthermore, there are uncertainties re-
sulting from certain telecommunications companies' diversification into new
domestic and international businesses as well as agreements by many such com-
panies linking future rate increases to inflation or other factors not di-
rectly related to the active operating profits of the enterprise.

Foreign utility companies are also subject to regulation, although such reg-
ulations may or may not be comparable to those in the United States. Foreign
utility companies may be more heavily regulated by their respective govern-
ments than utilities in the U.S. and, as in the U.S., generally are required
to seek government approval for rate increases. In addition, since many for-
eign utilities use fuel that causes more pollution than those used in the
U.S., such utilities may be required to invest in pollution control equipment
to meet any proposed pollution restrictions. Foreign regulatory systems vary
from country to country and may evolve in ways different from regulation in
the U.S.

The Utilities Series is permitted to invest in securities of issuers that
are outside the utilities industry, although under normal circumstances not
more than 35% of the Series' assets will be so invested. Such investments may
include common stocks, debt securities (including municipal debt securities)
and preferred stocks and will be selected to meet the Series' investment ob-
jective of both capital growth and current income. These securities may be is-
sued by either U.S. or non-U.S. companies. Some of these issuers may be in in-
dustries related to the utilities industry and, therefore, may be subject to
similar risks.

Investments outside the utilities industry may also include U.S. Government
Securities, as that term is defined under "Investment Objectives and Poli-
cies--MFS Total Return Series" above. When and if available, U.S. Government
Securities may be purchased at a discount from face value. However, the Series
does not intend to hold such securities to maturity for the purpose of achiev-
ing potential capital gains, unless current yields on the securities remain
attractive.

MFS HIGH INCOME SERIES -- The investment objective of the High Income Series
is to seek high current income by investing primarily in a professionally man-
aged diversified portfolio of fixed income securities, some of which may in-
volve equity features.

Fixed income securities offering the high current income sought by the High
Income Series normally include those fixed income securities which offer a
current yield above that generally available on debt securities in the three
highest rating categories of the recognized rating agencies (commonly known as
"junk bonds" if rated below the four highest categories of recognized rating
agencies). The Series may invest up to 100% of its net assets in such securi-
ties. For a description of these rating categories, see Appendix A to this
Prospectus and Appendix C for a chart showing the Series' holdings of fixed
income securities broken down by rating category as of the end of its most re-
cent fiscal year. (See "Additional Risk Factors" below.) However, since avail-
able yields and yield differentials vary over time, no specific level of in-
come or yield differential can ever be assured. The dividends paid by the Se-
ries will increase or decrease in relation to the income received by the Se-
ries from its investments, which would in any case be reduced by the expenses
of the Series before such income is distributed to its shareholders.

21
<PAGE>

Fixed income securities include preferred and preference stocks and all
types of debt obligations of both domestic and foreign issuers, such as bonds,
debentures, notes, equipment lease certificates, equipment trust certificates
(including interests in trusts or other entities representing such obliga-
tions), conditional sales contracts, commercial paper and obligations issued
or guaranteed by the U.S. Government, any foreign government or any of their
respective political subdivisions, agencies or instrumentalities (including
obligations, such as repurchase agreements, secured by instruments).

Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest and may involve equity features, such as conversion or ex-
change rights or warrants for the acquisition of stock of the same or a dif-
ferent issuer; participations based on revenues, sales or profits; or the pur-
chase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit). Under normal market conditions, not
more than 25% of the value of the total assets of the High Income Series will
be invested in equity securities, including common stocks, warrants and
rights.

Consistent with its investment objective and policies described above, the
Series may also invest up to 25% (and generally expects to invest not more
than 10%) of its net assets in foreign securities (including emerging market
securities and Brady Bonds) which are not traded on a U.S. exchange. The Se-
ries has authority to invest up to 25% of its total assets in securities is-
sued or guaranteed by foreign governments or their agencies or instrumentali-
ties. (See "Additional Risk Factors" below.)

The High Income Series may invest up to 40% of the value of its total assets
in each of the electric utility and telephone industries, but will not invest
more than 25% in either of those industries unless yields available for four
consecutive weeks in the four highest rating categories on new issue bonds in
such industry (issue size of $50 million or more) have averaged in excess of
105% of yields of new issue long-term industrial bonds similarly rated (issue
size of $50 million or more) and, in the opinion of the Adviser, the relative
return available from the electric utility or telephone industry and the rela-
tive risk, marketability, quality and availability of securities of such in-
dustry justifies such an investment.

When and if available, fixed income securities may be purchased at a dis-
count from face value. However, the High Income Series does not intend to hold
such securities to maturity for the purpose of achieving potential capital
gains, unless current yields on these securities remain attractive. From time
to time the Series may purchase securities not paying interest at the time ac-
quired if, in the opinion of the Adviser, such securities have the potential
for future income or capital appreciation.

MFS WORLD GOVERNMENTS SERIES -- The World Governments Series' investment ob-
jective is to seek not only preservation but also growth of capital, together
with moderate current income.

The World Governments Series seeks to achieve its investment objective
through a professionally managed, internationally diversified portfolio con-
sisting primarily of debt securities and to a lesser extent equity securities.
The Series attempts to provide investors with an opportunity to enhance the
value and increase the protection of their investment against inflation and
otherwise by taking advantage of investment opportunities in the U.S. as well
as in other countries where opportunities may be more rewarding. It is be-
lieved that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., can affect the
entire portfolio. Although the percentage of the Series' assets invested in
securities issued abroad and denominated in foreign currencies will vary de-
pending on the state of the economies of the principal countries of the world,
their financial markets and the relationship of their currencies to the U.S.
dollar, under normal conditions the Series' portfolio is internationally

22
<PAGE>

diversified. However, for temporary defensive reasons or during times of in-
ternational political or economic uncertainty or turmoil, most or all of the
Series' investments may be in the U.S.

Under normal economic and market conditions, at least 80% of the Series'
portfolio is invested in debt securities, such as bonds, debentures, mortgage
securities, notes, commercial paper, obligations issued or guaranteed by a
government or any of its political subdivisions, agencies or instrumentali-
ties, certificates of deposit, as well as debt obligations which may have a
call on common stock by means of a conversion privilege or attached warrants.

Consistent with its investment objective and policies described above, the
Series may invest up to 100% (and generally expects to invest not more than
80%) of its net assets in foreign securities (including emerging market secu-
rities and Brady Bonds) which are not traded on a U.S. exchange. Although the
percentage of the Series' assets invested in foreign securities will vary, at
least 65% of the Series' assets will be invested in at least three different
countries, one of which may be the U.S., except when the Adviser believes that
investing for temporary defensive purposes is appropriate. The Adviser will
determine the amount of the World Governments Series' assets to be invested in
the U.S. and the amount to be invested abroad. The U.S. assets will be in-
vested in high quality debt securities and the remainder of the assets will be
diversified among countries where opportunities for total return are expected
to be most attractive. It is currently expected that investments within for-
eign countries will be primarily in government securities to minimize credit
risks. The Series will not invest 25% or more of the value of its assets in
the securities of any one foreign government. The portfolio will be managed
actively and the asset allocations modified as the Adviser deems necessary.

The World Governments Series will purchase non-dollar securities denominated
in the currency of countries where the interest rate environment as well as
the general economic climate provide an opportunity for declining interest
rates and currency appreciation. If interest rates decline, such non-dollar
securities will appreciate in value. If the currency also appreciates against
the dollar, the total investment in such non-dollar securities would be en-
hanced further. Conversely, a rise in interest rates or decline in currency
exchange rates would adversely affect the Series' return. Investments in non-
dollar denominated securities are evaluated primarily on the strength of a
particular currency against the dollar and on the interest rate climate of
that country. Currency is judged on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political da-
ta. In addition to the foregoing, interest rates are evaluated on the basis of
differentials or anomalies that may exist between different countries. The Se-
ries may hold foreign currency received in connection with investments in for-
eign securities and in anticipation of purchasing foreign securities. (See
"Additional Risk Factors" below.)

The phrase "preservation of capital" when applied to a domestic investment
company is generally understood to imply that the portfolio is invested in
very low risk securities and that the major risk is loss of purchasing power
through the effects of inflation or major changes in interest rates. However,
while the World Governments Series invests in securities which are believed to
have minimal credit risk, an error of judgment in selecting a currency or an
interest rate environment could result in a loss of capital.

It is contemplated that the World Governments Series' long-term debt invest-
ments will consist primarily of securities which are believed by the Adviser
to be of relatively high quality. If after the Series purchases such a securi-
ty, the quality of the security deteriorates significantly, the security will
be sold only if the Adviser believes it is advantageous to do so.

23
<PAGE>

MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES -- The Foreign & Colo-
nial Emerging Markets Equity Series' investment objective is to seek capital
appreciation. The selection of securities is made solely on the basis of po-
tential for capital appreciation. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of capi-
tal appreciation.

The Series seeks to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of issuers
whose principal activities are located in emerging market countries. The Ad-
viser and the Sub-Adviser expect to take a global approach to portfolio man-
agement by weighting the Series' investments towards countries in Latin Ameri-
ca, Asia, Africa, the Middle East and the developing countries of Europe, pri-
marily in Eastern Europe. See "Investment Techniques--Emerging Market Securi-
ties" below. The Series may invest in all types of equity securities, includ-
ing the following: common stocks, preferred stocks and preference stocks; se-
curities such as bonds, warrants or rights that are convertible into stocks;
and depository receipts for those securities. These securities may be listed
on securities exchanges, traded in various over-the-counter markets or have no
organized markets.

While the Series intends to invest primarily in equity securities, the Se-
ries may also invest less than 35% of its net assets in non-convertible fixed
income securities of government, government-related, supranational and corpo-
rate issuers whose principal activities are outside the U.S., rated Ba or
lower by Moody's or BB or lower by S&P, Fitch or Duff & Phelps and comparable
unrated securities. See "Additional Risk Factors--Lower Rated Bonds" below.
The Adviser and the Sub-Adviser consider a variety of factors in selecting
fixed income securities to achieve capital appreciation, including the credit-
worthiness of issuers, interest rates and currency exchange rates.

The Series does not intend to emphasize any particular country or region in
making its investments, but under normal market conditions, the Series will be
invested in at least three countries (outside the U.S.) and will not invest
more than 50% of its net assets in issuers whose principal activities are lo-
cated in a single country. See "Risk Factors--Investments in One or a Limited
Number of Countries" below. Currently, the Series does not expect to invest
more than 25% of its net assets in issuers whose principal activities are lo-
cated in a single country. The Series will seek to reduce risk by investing
its assets in a number of markets and issuers, performing investment analyses
of potential investments and monitoring current developments and trends in
both the international economy and financial markets.

For temporary defensive reasons, such as during times of international po-
litical or economic uncertainty or turmoil, most or all of the Series' invest-
ments may be in cash (U.S. dollars, foreign currencies or multinational cur-
rency units) and/or securities that are denominated in U.S. dollars or whose
issuers are domiciled in the U.S. The Series is not restricted as to the por-
tions of its assets which may be invested in securities denominated in a par-
ticular currency and up to 100% of the Series' net assets may be invested in
securities denominated in foreign currencies and multinational currency units.

MFS BOND SERIES -- The Bond Series' primary investment objective is to provide
as high a level of current income as is believed to be consistent with prudent
investment risk. The Series' secondary objective is to protect shareholders'
capital.

The Series seeks to achieve its investment objectives by investing, under
normal market conditions, at least 65% of its total assets in:

(1) convertible and non-convertible debt securities and preferred stocks;

24
<PAGE>

(2) U.S. Government Securities, as defined in "Investment Objectives and
Policies--MFS Total Return Series" above; and

(3) commercial paper, repurchase agreements and cash or cash equivalents
(such as certificates of deposit and bankers' acceptances).

Not more than 20% of the Series' net assets will be invested in convertible
and non-convertible securities rated below the four highest grades of S&P,
Fitch (AAA, AA, A or BBB) or Moody's (Aaa, Aa, A or Baa) and comparable
unrated securities. For a description of these ratings see Appendix A to this
Prospectus and Appendix C for a chart showing the Series' holdings of fixed
income securities broken down by rating category as of the end of its most re-
cent fiscal year. For a discussion of the risks of investing in these securi-
ties see "Additional Risk Factors" below.

Although the Bond Series may purchase Canadian and other foreign securities,
under normal market conditions, it may not invest more than 10% of its assets
in non-dollar denominated non-Canadian foreign securities, including emerging
market securities and Brady Bonds. The Series may hold foreign currency re-
ceived in connection with investments in foreign securities or in anticipation
of purchasing foreign securities. (See "Investment Techniques" and "Additional
Risk Factors" below.)

The Bond Series may not directly purchase common stocks. However, the Series
may retain up to 10% of its total assets in common stocks which were acquired
either by conversion of fixed income securities or by the exercise of warrants
attached thereto.

MFS LIMITED MATURITY SERIES -- The Limited Maturity Series' primary investment
objective is to provide as high a level of current income as is believed to be
consistent with prudent investment risk. The Series' secondary objective is to
protect shareholders' capital.

In seeking to achieve its investment objectives, the Limited Maturity Series
invests, under normal market conditions, substantially all its assets in the
following securities:

1. Debt securities (including corporate asset-backed securities and mort-
gage pass-through securities discussed below) which have a rating within
the four highest grades as determined by S&P or Fitch (AAA, AA, A or
BBB) or Moody's (Aaa, Aa, A or Baa) and comparable unrated securities;
for a description of these rating categories, see Appendix A to this
Prospectus;

2. U.S. Government Securities, as defined in "Investment Objectives and
Policies--MFS Total Return Series" above; or

3. Commercial paper, repurchase agreements, cash or cash equivalents (such
as certificates of deposit and bankers' acceptances).

The Limited Maturity Series will only invest in securities rated within the
four highest grades, as determined by S&P or Moody's or Fitch, and comparable
unrated securities. In addition, the dollar-weighted average quality of the
Series will be within the three highest grades, as determined by S&P or
Moody's or Fitch (or the Adviser in the case of unrated securities).

Under normal market conditions, substantially all the securities in the Se-
ries' portfolio will have remaining maturities of five years or less or esti-
mated remaining average lives of five years or less. In the case of mortgage-
backed and corporate asset-backed securities as well as collateralized mort-
gage obligations, the average life is likely to be substantially shorter than
the stated final maturity as a result of unscheduled principal prepayments.

25
<PAGE>

For purposes of the foregoing investment policy, securities having a certain
maturity will be deemed to include securities with an equivalent "duration" of
such securities. "Duration" is a commonly used measure of the longevity of a
debt instrument that takes into account the full stream of payments received
on a debt instrument, including both interest and principal payments, based on
their present values. A debt instrument's duration is derived by discounting
principal and interest payments to their present value using the instrument's
current yield to maturity and taking the dollar-weighted average time until
those payments will be received. Contractual rights to dispose of a security
will be considered in calculating duration because such rights limit the pe-
riod during which the Series bears a market risk with respect to the security.

The Limited Maturity Series may invest up to 25% of its assets in dollar-de-
nominated foreign debt securities which may include emerging market securities
and Brady Bonds. (See "Investment Techniques" and "Additional Risk Factors"
below.)

MFS MONEY MARKET SERIES -- The Money Market Series' investment objective is to
seek as high a level of current income as is considered consistent with the
preservation of capital and liquidity.

The Money Market Series seeks to achieve its investment objective by invest-
ing primarily (i.e., at least 80% of its assets under normal circumstances) in
the following instruments:

(a) U.S. Government Securities, as defined in "Investment Objectives and
Policies--MFS Total Return Series" above (including repurchase agreements
collateralized by such securities);

(b) obligations of banks (including certificates of deposit and bankers'
acceptances) which at the date of investment have capital, surplus, and un-
divided profits (as of the date of their most recently published financial
statements) in excess of $100,000,000; and obligations of other banks or
savings and loan associations if such obligations are insured by the Fed-
eral Deposit Insurance Corporation, provided that not more than 10% of the
Series' total assets will be invested in such insured obligations;

(c) commercial paper which at the date of investment is rated A-1 by S&P
or by Fitch or P-1 by Moody's or, if not rated, is issued or guaranteed as
to payment of principal and interest by companies which at the date of in-
vestment have an outstanding debt issue rated AA or better by S&P or by
Fitch or Aa or better by Moody's (for a description of these ratings, see
Appendix A to this Prospectus); and

(d) short-term (maturing in 13 months or less) corporate obligations
which at the date of investment are rated AA or better by S&P or by Fitch
or Aa or better by Moody's.

The Money Market Series may also invest up to 20% of its total assets in
debt instruments not specifically described in (a) through (d) above, provided
that such instruments are deemed by the Trustees of the Trust to be of compa-
rable high quality and liquidity and provided that such investments are in ac-
cordance with applicable law. The Money Market Series may invest its assets in
the securities of foreign issuers and in the securities of foreign branches of
U.S. banks such as negotiable certificates of deposit (Eurodollars). Since the
portfolio of the Series may contain such securities, an investment in the Se-
ries may involve a greater degree of risk than an investment in a fund which
invests only in debt obligations of U.S. domestic issuers, due to the possi-
bility that there may be less publicly available information, more volatile
markets, less securities regulation, less favorable tax provisions, war or ex-
propriation. (See "Additional Risk Factors" below.)

In addition, the Money Market Series may invest up to 75% of its assets in
all finance companies as a group, all banks and bank holding companies as a
group and all utility companies as a group when, in the opinion of management,
yield differentials and money market conditions suggest such investments are
advisable and when cash is available for

26
<PAGE>

such investments and instruments are available for purchase which fulfill the
Series' objective in terms of quality and marketability.

All the assets of the Money Market Series will be invested in obligations
which mature in 13 months or less and substantially all of these investments
will be held to maturity; however, securities collateralizing repurchase
agreements may have maturities in excess of 13 months. The Money Market Series
will, to the extent feasible, make portfolio investments primarily in antici-
pation of or in response to changing economic and money market conditions and
trends. Currently, the dollar-weighted average maturity of the investments of
the Series may not exceed 90 days.

5. INVESTMENT TECHNIQUES

LENDING OF PORTFOLIO SECURITIES: Each Series (except the Money Market Se-
ries) may seek to increase its income by lending portfolio securities. Such
loans will usually be made to member firms (and subsidiaries thereof) of the
New York Stock Exchange (the "Exchange") and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, U.S. Treasury securities or an irrevocable letter of credit main-
tained on a current basis at an amount at least equal to the market value of
the securities loaned. If the Adviser determines to make securities loans, it
is intended that the value of the securities loaned would not exceed 10% of
the value of the net assets of the Series making the loans.

EMERGING MARKET SECURITIES: Consistent with their respective objectives,
each Series (except the Money Market Series) may invest in securities of is-
suers whose principal activities are located in emerging market countries.
Emerging market countries include any country determined by the Adviser or
Sub-Adviser, as applicable, to have an emerging market economy, taking into
account a number of factors, including whether the country has a low- to mid-
dle-income economy according to the International Bank for Reconstruction and
Development, the country's foreign currency debt rating, its political and
economic stability and the development of its financial and capital markets.
The Adviser or Sub-Adviser, as applicable, determines whether an issuer's
principal activities are located in an emerging market country by considering
such factors as its country of organization, the principal trading market for
its securities and the source of its revenues and assets. The issuer's princi-
pal activities generally are deemed to be located in a particular country if:
(a) the security is issued or guaranteed by the government of that country or
any of its agencies, authorities or instrumentalities; (b) the issuer is orga-
nized under the laws of, and maintains a principal office in that country; (c)
the issuer has its principal securities trading market in that country; (d)
the issuer derives 50% or more of its total revenues from goods sold or serv-
ices performed in that country; or (e) the issuer has 50% or more of its as-
sets in that country.

BRADY BONDS: Each Series (except the Research Series and Money Market Se-
ries) may invest in Brady Bonds, which are securities created through the ex-
change of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, Do-
minican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the Philippines,
Poland, Uruguay and Venezuela. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be collat-
eralized or uncollateralized, are issued in various currencies (but primarily
the U.S. dollar) and are actively traded in over-the-counter secondary mar-
kets. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed-
rate bonds or floating-rate bonds, are generally collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Brady Bonds are often viewed as having three or four valuation compo-
nents: the collateralized repayment of principal at final maturity; the col-
lateralized interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constituting the "residual risk"). In light of the residual risk of
Brady Bonds and the history of defaults of countries issuing Brady Bonds with
respect to commercial bank loans by public and private entities, investments
in Brady Bonds may be viewed as speculative.

27
<PAGE>

REPURCHASE AGREEMENTS: Each Series may enter into repurchase agreements in
order to earn income on available cash or as a temporary defensive measure.
Under a repurchase agreement, a Series acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Series' right to liquidate the securi-
ties may be restricted (during which time the value of the securities could
decline). As discussed in the SAI, each Series has adopted certain procedures
intended to minimize risk.

"WHEN-ISSUED" SECURITIES: Each Series (except the Research Series, the World
Governments Series and the Money Market Series) may purchase securities on a
"when-issued" or on a "forward delivery" basis, which means that the securi-
ties will be delivered to the Series at a future date usually beyond customary
settlement time. The commitment to purchase a security for which payment will
be made on a future date may be deemed a separate security. In general, a Se-
ries does not pay for such securities until received, and does not start earn-
ing interest on the securities until the contractual settlement date. While
awaiting delivery of securities purchased on such bases, a Series will nor-
mally invest in liquid assets.

MORTGAGE "DOLLAR ROLL" TRANSACTIONS: Each of the Total Return Series, the
Bond Series, the World Governments Series, the Limited Maturity Series, the
High Income Series and the Utilities Series may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which a
Series sells mortgage-backed securities for delivery in the future (generally
within 30 days) and simultaneously contracts to repurchase substantially simi-
lar (same type, coupon and maturity) securities on a specified future date.
The Series record these transactions as sale and purchase transactions, rather
than as borrowing transactions. A Series will only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an offset-
ting cash position or a cash equivalent security position which matures on or
before the forward settlement date of the dollar roll transaction. In the
event that the party with whom the Series contracts to replace substantially
similar securities on a future date fails to deliver such securities, the Se-
ries may not be able to obtain such securities at the price specified in such
contract and thus may not benefit from the price differential between the cur-
rent sales price and the repurchase price.

RESTRICTED SECURITIES: Each Series (except the Growth With Income Series)
may purchase securities that are not registered under the Securities Act of
1933 (the "1933 Act") ("restricted securities"), including those that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act ("Rule 144A securities"). A determination is made based upon a con-
tinuing review of the trading markets for a specific Rule 144A security,
whether such security is liquid and thus not subject to the Series' limitation
on investing not more than 15% of its net assets (not more than 10% of its net
assets in the case of the Money Market Series) in illiquid investments. The
Board of Trustees has adopted guidelines and delegated to MFS the daily func-
tion of determining and monitoring the liquidity of Rule 144A securities. The
Board, however, retains oversight, focusing on factors such as valuation, li-
quidity and availability of information. Investing in Rule 144A securities
could have the effect of decreasing the level of liquidity in a Series to the
extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Series' portfolio.

CORPORATE ASSET-BACKED SECURITIES: Each of the Emerging Growth Series, the
Total Return Series, the Bond Series, the Limited Maturity Series, the High
Income Series and the Utilities Series may invest in corporate asset-backed
securities. These securities, issued by trusts and special purpose corpora-
tions, are backed by a pool of assets, such as credit card and automobile loan
receivables, representing the obligations of a number of different parties.

28
<PAGE>

unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of automobile receivables permit the servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related automobile receiv-
ables. In addition, because of the large number of vehicles involved in a typ-
ical issuance and technical requirements under state laws, the trustee for the
holders of the automobile receivables may not have a proper security interest
in all of the obligations backing such receivables. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases,
be available to support payments on these securities. The underlying assets
(e.g., loans) are also subject to prepayments which shorten the securities'
weighted average life and may lower their return.

Corporate asset-backed securities are often backed by a pool of assets rep-
resenting the obligations of a number of different parties. To lessen the ef-
fect of failures by obligors on underlying assets to make payments, the secu-
rities may contain elements of credit support which fall into two categories:
(i) liquidity protection; and (ii) protection against losses resulting from
ultimate default by an obligor on the underlying assets. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default ensures payment through insurance policies or letters of credit ob-
tained by the issuer or sponsor from third parties. A Series will not pay any
additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information respect-
ing the level of credit risk associated with the underlying assets. Delin-
quency or loss in excess of that anticipated or failure of the credit support
could adversely affect the return on an investment in such a security.

ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS: Each of the Value
Series, the Total Return Series, the Bond Series, the Emerging Markets Equity
Series, the World Governments Series, the Growth With Income Series, the Lim-
ited Maturity Series, the High Income Series and the Utilities Series may in-
vest in zero coupon bonds. The Value Series, the Total Return Series, the Bond
Series and the High Income Series may also invest in deferred interest bonds
and PIK bonds. Zero coupon and deferred interest bonds are debt obligations
which are issued or purchased at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity or the first interest payment date at
a rate of interest reflecting the market rate of the security at the time of
issuance. While zero coupon bonds do not require the periodic payment of in-
terest, deferred interest bonds provide for a period of delay before the regu-
lar payment of interest begins. PIK bonds are debt obligations which provide
that the issuer thereof may, at its option, pay interest on such bonds in cash
or in the form of additional debt obligations. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but also require
a higher rate of return to attract investors who are willing to defer receipt
of such cash. Such investments may experience greater volatility in market
value due to changes in interest rates than debt obligations which make regu-
lar payments of interest. Each Series will accrue income on such investments
for tax and accounting purposes, as required, which is distributable to share-
holders and which, because no cash is received at the time of accrual, may re-
quire the liquidation of other portfolio securities to satisfy the Series'
distribution obligations.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
Each of the Bond Series, the World Governments Series, the Limited Maturity
Series, the High Income Series and the Utilities Series may invest a portion
of its assets in collateralized mortgage obligations or "CMOs," which are debt
obligations collateralized by mortgage loans or mortgage pass-through securi-
ties. Typically, CMOs are collateralized by certificates issued by GNMA, the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mort-
gage Corporation ("FHLMC"), but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively

29
<PAGE>

referred to as "Mortgage Assets"). Each of these Series may also invest a por-
tion of its assets in multiclass pass-through securities which are interests
in a trust composed of Mortgage Assets. CMOs (which include multiclass pass-
through securities) may be issued by agencies, authorities or instrumentali-
ties of the U.S. Government or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks, com-
mercial banks, investment banks and special purpose subsidiaries of the fore-
going. Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities. In
a CMO, a series of bonds or certificates are usually issued in multiple clas-
ses with different maturities. Each class of CMOs, often referred to as a
"tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayments on the Mort-
gage Assets may cause the CMOs to be retired substantially earlier than their
stated maturities or final distribution dates, resulting in a loss of all or
part of the premium if any has been paid. Certain classes of CMOs have prior-
ity over others with respect to the receipt of prepayments on the mortgages.
Therefore, depending on the type of CMOs in which a Series invests, the in-
vestment may be subject to a greater or lesser risk of prepayments than other
types of mortgage-related securities.

Each of the Bond Series, the World Governments Series, the Limited Maturity
Series, the High Income Series and the Utilities Series may also invest in
parallel pay CMOs and Planned Amortization Class CMOs ("PAC Bonds"). Parallel
pay CMOs are structured to provide payments of principal on each payment date
to more than one class. PAC Bonds generally require payments of a specified
amount of principal on each payment date. PAC Bonds are always parallel pay
CMOs with the required principal payment on such securities having the highest
priority after interest has been paid to all classes. For a further descrip-
tion of CMOs, parallel pay CMOs and PAC Bonds and the risks related to trans-
actions therein, see the SAI.

STRIPPED MORTGAGE-BACKED SECURITIES: Each of the Bond Series, the World Gov-
ernments Series and the High Income Series may invest a portion of its assets
in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities usually structured with two classes that re-
ceive different proportions of interest and principal distributions from an
underlying pool of mortgage assets. For a further description of SMBS and the
risks related to transactions therein, see the SAI.

LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: Each of the Emerging
Growth Series, the Value Series, the Total Return Series, the High Income Se-
ries and the Emerging Markets Equity Series may invest a portion of its assets
in "loan participations" and other direct indebtedness. By purchasing a loan
participation, a Series acquires some or all of the interest of a bank or
other lending institution in a loan to a corporate borrower. Many such loans
are secured, and most impose restrictive covenants which must be met by the
borrower. These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate activ-
ities. Such loans may be in default at the time of purchase. A Series may also
purchase other direct indebtedness such as trade or other claims against com-
panies, which generally represent money owed by the company to a supplier of
goods and services. These claims may also be purchased at a time when the com-
pany is in default. Certain of the loan participations and other direct in-
debtedness acquired by a Series may involve revolving credit facilities or
other standby financing commitments which obligate a Series to pay additional
cash on a certain date or on demand.

The highly leveraged nature of many such loans and other direct indebtedness
may make such loans especially vulnerable to adverse changes in economic or
market conditions. Loan participations and other direct indebtedness may not
be in the form of securities or may be subject to restrictions on transfer,
and only limited opportunities may exist to resell such instruments. As a re-
sult, a Series may be unable to sell such investments at an opportune time or
may have to resell them at less than fair market value. For a further discus-
sion of loan participations, other direct indebtedness and the risks related
to transactions therein, see the SAI.

30
<PAGE>

MORTGAGE PASS-THROUGH SECURITIES: Each of the Total Return Series, the Bond
Series, the World Governments Series, the Limited Maturity Series and the High
Income Series may invest in mortgage pass-through securities. Mortgage pass-
through securities are securities representing interests in "pools" of mort-
gage loans. The Utilities Series may invest in mortgage pass-through securi-
ties that are securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies, authorities or instrumentalities. Monthly
payments of interest and principal by the individual borrowers on mortgages
are passed through to the holders of the securities (net of fees paid to the
issuer or guarantor of the securities) as the mortgages in the underlying
mortgage pools are paid off. Payment of principal and interest on some mort-
gage pass-through securities (but not the market value of the securities them-
selves) may be guaranteed by the full faith and credit of the U.S. Government
(in the case of securities guaranteed by GNMA); or guaranteed by U.S. Govern-
ment-sponsored corporations (such as FNMA or FHLMC, which are supported only
by the discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities may also be issued by non-gov-
ernmental issuers (such as commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issuers). See the SAI for a further discussion of these securities.

FOREIGN GROWTH SECURITIES: The Emerging Markets Equity Series may invest in
securities of foreign growth companies, including established foreign compa-
nies, whose rates of earnings growth are expected to accelerate because of
special factors, such as rejuvenated management, new products, changes in con-
sumer demand, or basic changes in the economic environment or which otherwise
represent opportunities for long-term growth. See "Risk Factors" below. It is
anticipated that these companies will primarily be in nations with more devel-
oped securities markets, such as Japan, Australia, Canada, New Zealand and
most Western European countries, including Great Britain.

FIXED INCOME SECURITIES: Fixed income securities in which the Emerging Mar-
kets Equity Series may invest include all types of long- or short-term debt
obligations, such as bonds, notes, bills, debentures, loans, loan assignments
and commercial paper. The Series may invest in emerging market fixed income
securities, which, in addition to the securities identified above, may take
the form of interests issued by entities organized and operated for the pur-
pose of restructuring the investment characteristics of instruments issued by
emerging market country issuers. Fixed income securities in which the Series
may invest include securities in the lower rating categories of recognized
rating agencies and comparable unrated securities. See "Additional Risk Fac-
tors" below. The Series will not invest 35% or more of its net assets, in non-
convertible fixed income securities rated Ba or lower by Moody's or BB or
lower by S&P, Fitch or Duff & Phelps and comparable unrated securities. See
"Additional Risk Factors -- Fixed Income Securities" below. However, because
most foreign fixed income securities are not rated, the Series will invest in
foreign fixed income securities primarily based on the Adviser's or the Sub-
Adviser's credit analysis without relying on published ratings.

INVESTMENT IN OTHER INVESTMENT COMPANIES: The Emerging Markets Equity Series
may invest in other investment companies to the extent permitted by the 1940
Act (i) as a means by which the Series may invest in securities of certain
countries which do not otherwise permit investment, (ii) as a means to pur-
chase thinly traded securities of emerging market companies, or (iii) when the
Adviser or the Sub-Adviser believes such investments may be more advantageous
to the Series than a direct market purchase of securities. If the Series in-
vests in such investment companies, the Series' shareholders will bear not
only their proportionate share of the expenses of the Series (including oper-
ating expenses and the fees of the Adviser) but also will indirectly bear sim-
ilar expenses of the underlying investment companies.

PRIVATIZATIONS: The governments in some countries, including emerging market
countries, have been engaged in programs of selling part or all of their
stakes in government owned or controlled enterprises ("privatizations"). The
Emerging Markets Equity Series may invest in privatizations. In certain coun-
tries, the ability of foreign entities to participate in privatizations may be
limited by local law and the terms on which the foreign entities may be per-
mitted to participate may be less advantageous than those afforded local in-
vestors.

31
<PAGE>

DEPOSITARY RECEIPTS: The Emerging Markets Equity Series may invest in Ameri-
can Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and
other types of depositary receipts. ADRs are certificates issued by a U.S. de-
positary (usually a bank) and represent a specified quantity of shares of an
underlying non-U.S. stock on deposit with a custodian bank as collateral. GDRs
and other types of depositary receipts are typically issued by foreign banks
or trust companies and evidence ownership of underlying securities issued by
either a foreign or a U.S. company. Generally, ADRs are in registered form and
are designed for use in U.S. securities markets and GDRs are in bearer form
and are designed for use in foreign securities markets. For the purposes of
the Series' policy to invest a certain percentage of its assets in foreign se-
curities, the investments of the Series in ADRs, GDRs and other types of de-
positary receipts are deemed to be investments in the underlying securities.

STRUCTURED SECURITIES: The Emerging Markets Equity Series may invest a por-
tion of its assets in entities organized and operated solely for the purpose
of restructuring the investment characteristics of sovereign debt obligations.
This type of restructuring involves the deposit with, or purchase by, an enti-
ty, such as a corporation or trust, of specified instruments (such as commer-
cial bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by, or representing in-
terests in, the underlying instruments. The cash flow on the underlying in-
struments may be appointed among the newly issued Structured Securities to
create securities with different investment characteristics, such as varying
maturities, payment priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is dependent on the
extent of the cash flow on the underlying instruments. Because Structured Se-
curities of the type in which the Series anticipates it will invest typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of underlying instruments. The Series is permitted to invest in a
class of Structured Securities that is either subordinated or unsubordinated
to the right of payment of another class. Subordinated Structured Securities
typically have higher yields and present greater risks than unsubordinated
Structured Securities. Structured Securities are typically sold in private
placement transactions, and there currently is no active trading market for
Structured Securities.

INDEXED SECURITIES: Each of the Value Series, the Total Return Series, the
High Income Series, the Bond Series, the Utilities Series, the World Govern-
ments Series and the Emerging Markets Equity Series may invest in indexed se-
curities whose value is linked to foreign currencies, interest rates, commodi-
ties, indices or other financial indicators. Most indexed securities are
short- to intermediate-term fixed income securities whose values at maturity
(i.e., principal value) and/or interest rates rise or fall according to the
change in one or more specified underlying instruments. Indexed securities may
be positively or negatively indexed (i.e., their principal value or interest
rates may increase or decrease if the underlying instrument appreciates), and
may have return characteristics similar to direct investments in the under-
lying instrument or to one or more options on the underlying instrument. In-
dexed securities may be more volatile than the underlying instrument itself.

SWAPS AND RELATED TRANSACTIONS: As one way of managing its exposure to dif-
ferent types of investments, each of the High Income Series, the World Govern-
ments Series, the Emerging Markets Equity Series, the Bond Series and the Lim-
ited Maturity Series may enter into interest rate swaps, currency swaps and
other types of available swap agreements, such as caps, collars and floors.
Swaps involve the exchange by a Series with another party of cash payments
based upon different interest rate indexes, currencies, and other prices or
rates, such as the value of mortgage prepayment rates. For example, in the
typical interest rate swap, a Series might exchange a sequence of cash pay-
ments based on a floating rate index for cash payments based on a fixed rate.
Payments made by both parties to a swap transaction are based on a principal
amount determined by the parties.

Each of the High Income Series, the World Governments Series, the Emerging
Markets Equity Series, the Bond Series and the Limited Maturity Series may
also purchase and sell caps, floors and collars. In a typical cap or floor

32
<PAGE>

agreement, one party agrees to make payments only under specified circumstanc-
es, usually in return for payment of a fee by the counterparty. For example,
the purchase of an interest rate cap entitles the buyer, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the counterparty sell-
ing such interest rate cap. The sale of an interest rate floor obligates the
seller to make payments to the extent that a specified interest rate falls be-
low an agreed-upon level. A collar arrangement combines elements of buying a
cap and selling a floor.

Swap agreements will tend to shift a Series' investment exposure from one
type of investment to another. For example, if a Series agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease a Series' exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a Series' investments and its share price and yield.

Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Series' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Series may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its expo-
sure through offsetting transactions.

Swaps, caps, floors and collars are highly specialized activities which in-
volve certain risks. See the SAI for further information on, and the risks in-
volved in, these activities.

OPTIONS ON SECURITIES: Each of the Emerging Growth Series, the Value Series,
the Total Return Series, the Bond Series, the Emerging Markets Equity Series,
the World Governments Series, the Growth With Income Series and the High In-
come Series may write (sell) covered put and call options and purchase put and
call options on securities. Each of these Series will write options on securi-
ties for the purpose of increasing its return and/or to protect the value of
its portfolio. In particular, where a Series writes an option that expires un-
exercised or is closed out by the Series at a profit, it will retain the pre-
mium paid for the option which will increase its gross income and will offset
in part the reduced value of the portfolio security underlying the option, or
the increased cost of portfolio securities to be acquired. In contrast, howev-
er, if the price of the underlying security moves adversely to the Series' po-
sition, the option may be exercised and the Series will be required to pur-
chase or sell the underlying security at a disadvantageous price, which may
only be partially offset by the amount of the premium. The Series may also
write combinations of put and call options on the same security, known as
"straddles." Such transactions can generate additional premium income but also
present increased risk.

By writing a call option on a security, a Series limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the Se-
ries retains the risk of depreciation in value of securities on which it has
written call options.

Each of these Series may also purchase put or call options in anticipation
of market fluctuations which may adversely affect the value of its portfolio
or the prices of securities that a Series wants to purchase at a later date.
In the event that the expected market fluctuations occur, the Series may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the options purchased. The premium paid for a put or call option
plus any transaction costs will reduce the benefit, if any, realized by the
Series upon exercise or liquidation of the option, and, unless the price of
the underlying security changes sufficiently, the option may expire without
value to the Series.

33
<PAGE>

In certain instances, the Emerging Markets Equity Series and the Emerging
Growth Series may enter into options on Treasury securities that are "reset"
options or "adjustable strike" options. These options provide for periodic ad-
justment of the strike price and may also provide for the periodic adjustment
of the premium during the term of the option. The SAI contains a further dis-
cussion of these investments.

OPTIONS ON STOCK INDICES: Each of the Emerging Growth Series, the Value Se-
ries, the Total Return Series, the Growth With Income Series, the Utilities
Series and the Emerging Markets Equity Series may write (sell) covered call
and put options and purchase call and put options on stock indices. Each of
these Series may write options on stock indices for the purpose of increasing
its gross income and to protect its portfolio against declines in the value of
securities it owns or increases in the value of securities to be acquired.
When a Series writes an option on a stock index, and the value of the index
moves adversely to the holder's position, the option will not be exercised,
and the Series will either close out the option at a profit or allow it to ex-
pire unexercised. A Series will thereby retain the amount of the premium, less
related transaction costs, which will increase its gross income and offset
part of the reduced value of portfolio securities or the increased cost of se-
curities to be acquired. Such transactions, however, will constitute only par-
tial hedges against adverse price fluctuations, since any such fluctuations
will be offset only to the extent of the premium received by a Series for the
writing of the option, less related transaction costs. In addition, if the
value of an underlying index moves adversely to a Series' option position, the
option may be exercised, and the Series will experience a loss which may only
be partially offset by the amount of the premium received.

Each of these Series may also purchase put or call options on stock indices
in order, respectively, to hedge its investments against a decline in value or
to attempt to reduce the risk of missing a market or industry segment advance.
A Series' possible loss in either case will be limited to the premium paid for
the option, plus related transaction costs.

"YIELD CURVE" OPTIONS: Each of the Value Series, the Total Return Series,
the Bond Series, the World Governments Series and the High Income Series may
enter into options on the yield "spread," or yield differential, between two
securities, a transaction referred to as a "yield curve" option, for hedging
and non-hedging (an effort to increase current income) purposes. In contrast
to other types of options, a yield curve option is based on the difference be-
tween the yields of designated securities rather than the actual prices of the
individual securities, and is settled through cash payments. Accordingly, a
yield curve option is profitable to the holder if this differential widens (in
the case of a call) or narrows (in the case of a put), regardless of whether
the yields of the underlying securities increase or decrease. Yield curve op-
tions written by a Series will be covered as described in the SAI. The trading
of yield curve options is subject to all the risks associated with trading
other types of options, as discussed below under "Additional Risk Factors" and
in the SAI. In addition, such options present risks of loss even if the yield
on one of the underlying securities remains constant, if the spread moves in a
direction or to an extent which was not anticipated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS: Each of the Total Return
Series, the Bond Series, the Emerging Markets Equity Series, the World Govern-
ments Series, the Limited Maturity Series, the High Income Series and the
Utilities Series may purchase and sell futures contracts on foreign or domes-
tic fixed income securities or indices of such securities, including municipal
bond indices and any other indices of foreign or domestic fixed income securi-
ties that may become available for trading ("Futures Contracts"). Each of
these Series may also purchase and write options on such Futures Contracts
("Options on Futures Contracts"). Each of the Emerging Growth Series, the
Value Series, the Total Return Series, the Growth With Income Series and the
Emerging Markets Equity Series may purchase and sell Futures Contracts on
stock indices, while the Emerging Growth Series, the Value Series, the Total
Return Series, the Emerging Markets Equity Series, the World Governments Se-
ries, the Growth With Income Series and the Utilities Series may purchase and
sell Futures Contracts on foreign currencies or indices of foreign currencies.
Each of these Series may also purchase and write Options on such Futures Con-
tracts.

34
<PAGE>

Such transactions will be entered into for hedging purposes or for non-hedg-
ing purposes to the extent permitted by applicable law. Each Series will incur
brokerage fees when it purchases and sells Futures Contracts, and will be re-
quired to maintain margin deposits. In addition, Futures Contracts entail
risks. Although the Adviser believes that use of such Contracts will benefit a
Series, if its investment judgment about the general direction of exchange
rates or the stock market is incorrect, the Series' overall performance may be
poorer than if it had not entered into any such contract and the Series may
realize a loss. A Series will not enter into any Futures Contract if immedi-
ately thereafter the value of securities and other obligations underlying all
such Futures Contracts held by such Series would exceed 50% of the value of
its total assets.

Purchases of Options on Futures Contracts may present less risk in hedging a
Series' portfolio than the purchase or sale of the underlying Futures Con-
tracts since the potential loss is limited to the amount of the premium plus
related transaction costs, although it may be necessary to exercise the option
to realize any profit, which results in the establishment of a futures posi-
tion. The writing of Options on Futures Contracts, however, does not present
less risk than the trading of Futures Contracts and will constitute only a
partial hedge, up to the amount of the premium received. In addition, if an
option is exercised, a Series may suffer a loss on the transaction.

Futures Contracts and Options on Futures Contracts that are entered into by
a Series will be traded on U.S. and foreign exchanges.

FORWARD CONTRACTS: Each Series (except the Limited Maturity Series and Money
Market Series) may enter into forward foreign currency exchange contracts for
the purchase or sale of a fixed quantity of a foreign currency at a future
date ("Forward Contracts"). Each of these Series may enter into Forward Con-
tracts for hedging purposes and (except for the Bond Series and the High In-
come Series) for non-hedging purposes (i.e., speculative purposes). By enter-
ing into transactions in Forward Contracts for hedging purposes, a Series may
be required to forego the benefits of advantageous changes in exchange rates
and, in the case of Forward Contracts entered into for non-hedging purposes, a
Series may sustain losses which will reduce its gross income. Such transac-
tions, therefore, could be considered speculative. Forward Contracts are
traded over-the-counter and not on organized commodities or securities ex-
changes. As a result, Forward Contracts operate in a manner distinct from ex-
change-traded instruments, and their use involves certain risks beyond those
associated with transactions in Futures Contracts or options traded on ex-
changes. A Series may choose to, or be required to, receive delivery of the
foreign currencies underlying Forward Contracts it has entered into. Under
certain circumstances, such as where the Adviser or Sub-Adviser, as applica-
ble, believes that the applicable exchange rate is unfavorable at the time the
currencies are received or the Adviser or Sub-Adviser, as applicable, antici-
pates, for any other reason, that the exchange rate will improve, the Series
may hold such currencies for an indefinite period of time. A Series may also
enter into a Forward Contract on one currency to hedge against risk of loss
arising from fluctuations in the value of a second currency (referred to as a
"cross hedge") if, in the judgment of the Adviser or Sub-Adviser, as applica-
ble, a reasonable degree of correlation can be expected between movements in
the values of the two currencies. Each of these Series has established proce-
dures consistent with statements of the SEC and its staff regarding the use of
Forward Contracts by registered investment companies, which requires use of
segregated assets or "cover" in connection with the purchase and sale of such
contracts.

35
<PAGE>

Series may be required to purchase or sell foreign currencies at disadvanta-
geous exchange rates, thereby incurring losses. The purchase of an Option on
Foreign Currency may constitute an effective hedge against fluctuations in ex-
change rates although, in the event of rate movements adverse to a Series' po-
sition, it may forfeit the entire amount of the premium paid for the option
plus related transaction costs. A Series may also choose to, or be required
to, receive delivery of the foreign currencies underlying Options on Foreign
Currencies it has entered into. Under certain circumstances, such as where the
Adviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Adviser anticipates, for any other reason,
that the exchange rate will improve, a Series may hold such currencies for an
indefinite period of time.

6. ADDITIONAL RISK FACTORS

OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: Although certain Series
will enter into transactions in options, Futures Contracts, Options on Futures
Contracts, Forward Contracts and Options on Foreign Currencies for hedging
purposes, such transactions nevertheless involve certain risks. For example, a
lack of correlation between the instrument underlying an option or Futures
Contract and the assets being hedged, or unexpected adverse price movements,
could render a Series' hedging strategy unsuccessful and could result in loss-
es. Certain Series also may enter into transactions in options, Futures Con-
tracts, Options on Futures Contracts and Forward Contracts for other than
hedging purposes, which involves greater risk. In particular, such transac-
tions may result in losses for a Series which are not offset by gains on other
portfolio positions, thereby reducing gross income. In addition, foreign cur-
rency markets may be extremely volatile from time to time. There also can be
no assurance that a liquid secondary market will exist for any contract pur-
chased or sold, and a Series may be required to maintain a position until ex-
ercise or expiration, which could result in losses. The SAI contains a de-
scription of the nature and trading mechanics of options, Futures Contracts,
Options on Futures Contracts, Forward Contracts and Options on Foreign Curren-
cies, and includes a discussion of the risks related to transactions therein.

Transactions in Forward Contracts may be entered into only in the over-the-
counter market. Futures Contracts and Options on Futures Contracts may be en-
tered into on U.S. exchanges regulated by the Commodity Futures Trading Com-
mission and on foreign exchanges. In addition, the securities and indexes un-
derlying options, Futures Contracts and Options on Futures Contracts traded by
the Series will include both domestic and foreign securities.

LOWER RATED BONDS: Each of the Emerging Growth Series, the Value Series, the
Research Series, the Total Return Series, the Bond Series, the Limited Matu-
rity Series, the Emerging Markets Equity Series, the High Income Series and
the Utilities Series may invest in fixed income securities rated Baa by
Moody's or BBB by S&P or Fitch and comparable unrated securities. These secu-
rities, while normally exhibiting adequate protection parameters, have specu-
lative characteristics and changes in economic conditions or other circum-
stances are more likely to lead to a weakened capacity to make principal and
interest payments than in the case of higher grade securities.

Each of these Series (except the Limited Maturity Series) may also invest in
securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch and
comparable unrated securities (commonly known as "junk bonds") to the extent
described above. See Appendix A to this Prospectus for a description of these
ratings. These securities are considered speculative and, while generally pro-
viding greater income than investments in higher rated securities, will in-
volve greater risk of principal and income (including the possibility of de-
fault or bankruptcy of the issuers of such securities) and may involve greater
volatility of price (especially during periods of economic uncertainty or
change) than securities in the higher rating categories. However, since yields
vary over time, no specific level of income can ever be assured. These lower
rated high yielding fixed income securities generally tend to reflect economic
changes and short-term corporate and industry developments to a greater extent
than higher rated securities which react primarily to fluctuations in the gen-
eral level of interest rates (although these lower rated fixed income securi-
ties are also affected by changes in interest rates, the market's perception
of their credit quality, and the outlook for economic

36
<PAGE>

growth). In the past, economic downturns or an increase in interest rates
have, under certain circumstances, caused a higher incidence of default by the
issuers of these securities and may do so in the future, especially in the
case of highly leveraged issuers. During certain periods, the higher yields on
a Series' lower rated high yielding fixed income securities are paid primarily
because of the increased risk of loss of principal and income, arising from
such factors as the heightened possibility of default or bankruptcy of the is-
suers of such securities. Due to the fixed income payments of these securi-
ties, a Series may continue to earn the same level of interest income while
its net asset value declines due to portfolio losses, which could result in an
increase in the Series' yield despite the actual loss of principal. The market
for these lower rated fixed income securities may be less liquid than the mar-
ket for investment grade fixed income securities, and judgment may at times
play a greater role in valuing these securities than in the case of investment
grade fixed income securities. Changes in the value of securities subsequent
to their acquisition will not affect cash income or yield to maturity to a Se-
ries but will be reflected in the net asset value of shares of the Series. See
the SAI for more information on lower rated securities.

FOREIGN SECURITIES: The Limited Maturity Series may invest in dollar-denomi-
nated foreign debt securities. The Money Market Series may invest in dollar-
denominated securities of foreign issuers and in dollar-denominated securities
of foreign branches of U.S. banks such as negotiable certificates of deposit
(Eurodollars). The remaining Series may invest in dollar-denominated and non-
dollar-denominated foreign securities. Investing in securities of foreign is-
suers generally involves risks not ordinarily associated with investing in se-
curities of domestic issuers. These include changes in currency rates, ex-
change control regulations, governmental administration or economic or mone-
tary policy (in the U.S. or abroad) or circumstances in dealings between na-
tions. Costs may be incurred in connection with conversions between various
currencies. Special considerations may also include more limited information
about foreign issuers, higher brokerage costs, different accounting standards
and thinner trading markets. Foreign securities markets may also be less liq-
uid, more volatile and less subject to government supervision than in the
United States. Investments in foreign countries could be affected by other
factors including expropriation, confiscatory taxation and potential difficul-
ties in enforcing contractual obligations and could be subject to extended
settlement periods. All of the Series (except the Limited Maturity Series and
the Money Market Series) may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Adviser, it
would be beneficial to convert such currency into U.S. dollars at a later
date, based on anticipated changes in the relevant exchange rate. Such Series
may also hold foreign currency in anticipation of purchasing foreign securi-
ties. See the SAI for further discussion of foreign securities and the holding
of foreign currency, as well as the associated risks.

AMERICAN DEPOSITARY RECEIPTS: Each of the Series (except the Limited Matu-
rity Series and the Money Market Series) may invest in ADRs which are certifi-
cates issued by a U.S. depository (usually a bank) and represent a specified
quantity of shares of an underlying non-U.S. stock on deposit with a custodian
bank as collateral. Because ADRs trade on U.S. securities exchanges, the Ad-
viser does not treat them as foreign securities (except with respect to the
Emerging Markets Equity Series). However, they are subject to many of the
risks of foreign securities such as changes in exchange rates and more limited
information about foreign issuers.

EMERGING MARKET SECURITIES: Each of the Series (except the Money Market Se-
ries) may invest in emerging markets. In addition to the general risks of in-
vesting in foreign securities, investments in emerging markets involve special
risks. Securities of many issuers in emerging markets may be less liquid and
more volatile than securities of comparable domestic issuers. These securities
may be considered speculative and, while generally offering higher income and
the potential for capital appreciation, may present significantly greater
risk. Emerging markets may have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult
to conduct such transactions. Delays in settlement could result in temporary
periods when a portion of the assets of a Series is uninvested and no return
is earned thereon. The inability of a Series to make intended security pur-
chases due to settlement problems

37
<PAGE>

could cause a Series to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result in
losses to a Series due to subsequent declines in value of the portfolio secu-
rities, a decrease in the level of liquidity in a Series' portfolio, or if a
Series has entered into a contract to sell the security, possible liability to
the purchaser. Certain markets may require payment for securities before de-
livery, and in such markets a Series bears the risk that the securities will
not be delivered and that the Series' payments will not be returned. Securi-
ties prices in emerging markets can be significantly more volatile than in the
more developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the
risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets, ad may have less protection of prop-
erty rights than more developed countries. The economies of countries with
emerging markets may be predominantly based on only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may suf-
fer from extreme and volatile debt burdens or inflation rates. Local securi-
ties markets may trade a small number of securities and may be unable to re-
spond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. Securi-
ties of issuers located in countries with emerging markets may have limited
marketability and may be subject to more abrupt or erratic movements.

Certain emerging markets may require governmental approval for the repatria-
tion of investment income, capital or the proceeds of sales of securities by
foreign investors. In addition, if a deterioration occurs in an emerging mar-
ket's balance of payments or for other reasons, a country could impose tempo-
rary restrictions on foreign capital remittances. A Series could be adversely
affected by delays in, or a refusal to grant, any required governmental ap-
proval for repatriation of capital, as well as by the application to the Se-
ries of any restrictions on investments.

Investment in certain foreign emerging market debt obligations may be re-
stricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obliga-
tions and increase the expenses of a Series.

ALLOCATION AMONG EMERGING MARKETS: The Emerging Markets Equity Series may
allocate all or a portion of its investments in emerging market securities
among the emerging markets of Latin America, Asia, Africa, the Middle East and
the developing countries of Europe, primarily in Eastern Europe. The Series
will allocate its investments among these emerging markets in accordance with
the Adviser's and the Sub-Adviser's determination as to the allocation most
appropriate with respect to the Series' investment objective and policies. The
Series may invest its assets allocated to investment in emerging markets with-
out limitation in any particular region, and, in accordance with the Adviser's
and the Sub-Adviser's investment discretion, at times may invest all of its
assets allocated to investment in emerging markets in securities of emerging
market issuers located in a single region (e.g., Latin America). To the extent
that the Series' investments are concentrated in one or a few emerging market
regions, the Series' investment performance correspondingly will be more de-
pendent upon the economic, political and social conditions and changes in
those regions. The ability of the Series to allocate its investments among
emerging market regions without restriction may have the effect of increasing
the volatility of the Series, as compared to a series which limits such allo-
cations.

INVESTMENTS IN ONE OR A LIMITED NUMBER OF COUNTRIES: The Emerging Markets
Equity Series will seek to reduce risk by investing its assets in a number of
markets and issuers. However, the Series may invest up to 50% of its net as-
sets in issuers located in a single country. To the extent that the Series in-
vests a significant portion of its assets in a single or limited number of
countries, the Series' investment performance correspondingly will be more de-
pendent upon the economic, political and social conditions and changes in that
country or countries, and the risks associated with investments in such coun-
try or countries will be particularly significant. The ability of the Series
to focus its investments in one or a limited number of countries may have the
effect of increasing the volatility of the Series.

38
<PAGE>

FOREIGN CURRENCIES: Because the Foreign & Colonial Emerging Markets Equity
Series may invest up to 100% of its assets in securities denominated in cur-
rencies other than the U.S. dollar, and because the Series may hold foreign
currencies, the value of the Series' investments, and the value of dividends
and interest earned by the Series, may be significantly affected by changes in
currency exchange rates. Some foreign currency values may be volatile, and
there is the possibility of governmental controls on currency exchange or gov-
ernmental intervention in currency markets, which could adversely affect the
Series. Although the Adviser and Sub-Adviser may attempt to manage currency
exchange rate risks, there is no assurance that the Adviser and Sub-Adviser
will do so at an appropriate time or that the Adviser and Sub-Adviser will be
able to predict exchange rates accurately. For example, if the Adviser and
Sub- Adviser hedge the Series' exposure to a foreign currency, and that
currency's value rises, the Series will lose the opportunity to participate in
the currency's appreciation. The Series may hold foreign currency received in
connection with investments in foreign securities, and enter into Forward Con-
tracts, Futures Contracts and Options on Foreign Currencies when, in the judg-
ment of the Adviser or Sub-Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rates. While the holding of foreign currencies will per-
mit the Series to take advantage of favorable movements in the applicable ex-
change rate, it also exposes the Series to risk of loss if such rates move in
a direction adverse to the Series' position. Such losses could also adversely
affect the Series' hedging strategies. See the SAI for further discussion of
the holding of foreign currencies as well as the associated risks.

NON-DIVERSIFICATION: Each of the World Governments Series and the Utilities
Series is "non-diversified," as that term is defined in the Investment Company
Act of 1940 ( the "1940 Act"), but intends to qualify as a "regulated invest-
ment company" ("RIC") for federal income tax purposes. This means, in general,
that although more than 5% of the Series' total assets may be invested in the
securities of one issuer (including a foreign government), at the close of
each quarter of its taxable year the aggregate amount of such holdings may not
exceed 50% of the value of its total assets, and no more than 25% of the value
of its total assets may be invested in the securities of a single issuer. To
the extent that a non-diversified Series at times may hold the securities of a
smaller number of issuers than if it were "diversified" (as defined in the
1940 Act), the Series will at such times be subject to greater risk with re-
spect to its portfolio securities than a fund that invests in a broader range
of securities, because changes in the financial condition or market assessment
of a single issuer may cause greater fluctuations in the Series' total return
and the net asset value of its shares.

----------------

SHORT-TERM INVESTMENTS FOR TEMPORARY DEFENSIVE PURPOSES -- During periods of
unusual market conditions when the Adviser or Sub-Adviser, as applicable, be-
lieves that investing for temporary defensive purposes is appropriate, or in
order to meet anticipated redemption requests, a large portion or all of the
assets of each Series may be invested in cash (including foreign currency) or
cash equivalents including, but not limited to, obligations of banks (includ-
ing certificates of deposit, bankers' acceptances, time deposits and repur-
chase agreements), commercial paper, short-term notes, U.S. Government Securi-
ties and related repurchase agreements.

PORTFOLIO TRADING

Each Series intends to manage its portfolio by buying and selling securi-
ties, as well as holding securities to maturity, to help attain its investment
objectives and policies.

Each Series will engage in portfolio trading if it believes a transaction,
net of costs (including custodian charges), will help in attaining its invest-
ment objectives. In trading portfolio securities, a Series seeks to take ad-
vantage of market developments, yield disparities and variations in the cred-
itworthiness of issuers. For a description of the strategies

39
<PAGE>

which may be used by the Series in trading portfolio securities, see "Portfo-
lio Transactions and Brokerage Commissions" in the SAI. The Total Return Se-
ries' portfolio will be managed actively with respect to the Series' fixed in-
come securities and the asset allocations modified as the Adviser deems neces-
sary. Although the Series does not intend to seek short-term profits, fixed
income securities in its portfolio will be sold whenever the Adviser believes
it is appropriate to do so without regard to the length of time the particular
asset may have been held. With respect to its equity securities, the Total Re-
turn Series does not intend to trade in securities for short-term profits and
anticipates that portfolio securities ordinarily will be held for one year or
longer. However, the Series will effect trades whenever it believes that
changes in its portfolio securities are appropriate.

Because each of the Utilities Series, the High Income Series, the World Gov-
ernments Series, the Bond Series and the Limited Maturity Series is expected
to have a portfolio turnover rate of over 100%, transaction costs incurred by
the Series and the realized capital gains and losses of the Series may be
greater than that of a fund with a lesser portfolio turnover rate. The Emerg-
ing Markets Equity Series is not anticipated to have a portfolio turnover rate
in excess of 100%.

The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner possi-
ble. Consistent with the foregoing primary consideration, the Conduct Rules of
the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees of the Trust may determine, the Adviser may
consider sales of Contracts for which the Trust is an investment option, to-
gether with sales of shares of other investment company clients of MFS Fund
Distributors, Inc., the distributor of shares of the Trust and of the MFS Fam-
ily of Funds, as a factor in the selection of broker-dealers to execute each
Series' portfolio transactions. From time to time the Adviser may direct cer-
tain portfolio transactions to broker-dealer firms which, in turn, have agreed
to pay a portion of the Series' operating expenses (e.g., fees charged by the
custodian of the Series' assets). For a further discussion of portfolio trad-
ing, see the SAI.

----------------

The SAI includes a discussion of other investment policies and listing of
specific investment restrictions which govern the investment policies of each
Series. The specific investment restrictions listed in the SAI may be changed
without shareholder approval unless indicated otherwise (see the SAI). The Se-
ries' investment limitations, policies and rating standards are adhered to at
the time of purchase or utilization of assets; a subsequent change in circum-
stances will not be considered to result in a violation of policy.

40
<PAGE>

7.MANAGEMENT OF THE SERIES

The Trust's Board of Trustees, as part of its overall management responsi-
bility, oversees various organizations responsible for each Series' day-to-day
management.

INVESTMENT ADVISER -- MFS manages each Series pursuant to an Amended and Re-
stated Investment Advisory Agreement with the Trust on behalf of each Series
dated April 14, 1994, as amended and restated on October 16, 1997 (the "Advi-
sory Agreement"). Under the Advisory Agreement, MFS provides the Series with
overall investment advisory services. Subject to such policies as the Trustees
may determine, MFS makes investment decisions for each Series. For its serv-
ices and facilities, MFS receives a management fee, computed and paid monthly,
in an amount equal to the following annual rates of the average daily net as-
sets of each Series:

<TABLE>
<CAPTION>
PERCENTAGE OF THE AVERAGE
DAILY NET ASSETS
SERIES OF EACH SERIES
- ------ -------------------------
<S> <C>
Emerging Growth Series................................ 0.75%
Value Series.......................................... 0.75%
Research Series....................................... 0.75%
Growth With Income Series............................. 0.75%
Total Return Series................................... 0.75%
Utilities Series...................................... 0.75%
High Income Series.................................... 0.75%
World Governments Series.............................. 0.75%
Emerging Markets Equity Series........................ 1.25%
Bond Series........................................... 0.60%
Limited Maturity Series............................... 0.55%
Money Market Series................................... 0.50%
</TABLE>

For the fiscal year ended December 31, 1996, MFS received the following man-
agement fees from the Series under the Advisory Agreement and assumed the fol-
lowing amounts of the Series' expenses (see "Expenses" below):

<TABLE>
<CAPTION>
MANAGEMENT FEE EXPENSES ASSUMED
SERIES PAID TO MFS BY MFS
- ------ -------------- ----------------
<S> <C> <C>
Emerging Growth Series.......................... $314,262 $ 62,962
Value Series.................................... 3,196 12,079
Research Series................................. 92,348 56,859
Growth With Income Series....................... 30,792 42,658
Total Return Series............................. 60,979 87,721
Utilities Series................................ 39,863 91,877
High Income Series.............................. 56,169 45,293
World Governments Series........................ 126,898 172,556
Bond Series..................................... 2,924 40,829
Limited Maturity Series......................... 1,064 12,705
Money Market Series............................. 858 46,831
</TABLE>

FCM--The Emerging Markets Equity Series Advisory Agreement permits the Ad-
viser from time to time to engage one or more sub-advisers to assist in the
performance of its services. Pursuant to the Advisory Agreement, the Adviser
has engaged Foreign & Colonial Management Ltd., a company incorporated under
the laws of England and Wales

41
<PAGE>

("FCM"), located at Exchange House, Primrose Street, London EC2A 2NY, United
Kingdom, as sub-adviser to render advisory services to the Series. FCM is a
wholly owned subsidiary of Hypo Foreign & Colonial Management (Holdings) Ltd.
("Hypo F&C"). Sixty-Five percent of the outstanding voting securities of Hypo
F&C is owned by Hypo (U.K.) Holdings Ltd., which is a wholly owned subsidiary
of HYPO-BANK (Bayerische Hypotheken-und Wechsel-Bank AG), the oldest publicly
listed, and fifth largest, commercial bank in Germany, founded in 1835. The
remaining 35% of the outstanding voting securities of Hypo F&C is owned by 4
closed-end publicly listed investment trusts managed by FCM, including Foreign
& Colonial Investment Trust PLC. FCM has a history of money management dating
from 1868 and the establishment of the world's oldest closed-end fund, Foreign
& Colonial Investment Trust PLC. As of May 31, 1997, FCM managed approximately
U.S. $45.64 billion of assets, including approximately U.S. $35.85 billion of
assets in equity securities and approximately U.S. $9.79 billion of assets in
fixed income securities.

Under a separate Sub-Advisory Agreement between the Adviser and FCM, dated
October 16, 1997 (the "Sub-Advisory Agreement"), the Adviser may delegate to
FCM the authority to make investment decisions for the Series. It is presently
intended that FCM will provide portfolio management services for the Series.
For its services, the Adviser pays FCM a management fee, computed and paid
monthly, in an amount equal to 1.00% of the average daily net assets of the
Series on an annualized basis. The Adviser and FCM have agreed to cooperate in
distributing, advising and managing investment products throughout the world.
In this arrangement they anticipate that certain expenses and revenues relat-
ing to their cooperative activities, including investment advisory fees re-
ceived from the Series and certain expenses incurred by MFS, FCM and their af-
filiates attributable to their services to the Series, will be shared.

FCEM--The Emerging Markets Equity Series Sub-Advisory Agreement permits FCM
from time to time to engage one or more sub-advisers to assist in the perfor-
mance of its services. Pursuant to the Sub-Advisory Agreement, FCM has engaged
Foreign & Colonial Emerging Markets Limited, a company incorporated under the
laws of England and Wales ("FCEM"), located at Exchange House, Primrose
Street, London EC2A 2NY, United Kingdom, as sub-adviser to render advisory
services to the Series. FCEM is a wholly owned subsidiary of FCM. FCEM serves
as the investment adviser to public closed-end and open-end funds and segre-
gated accounts specializing in emerging markets. As of May 31, 1997, FCEM man-
aged approximately U.S. $4.92 billion of assets invested in emerging markets.

Under a separate Sub-Advisory Agreement between FCM and FCEM, dated October
16, 1997, FCM may delegate to FCEM the authority to make investment decisions
for the Series. It is presently intended that FCEM will provide management
services for the portion of the assets of the Series invested in emerging mar-
kets securities. For its services, FCM pays FCEM a management fee, computed
and paid monthly, in an amount equal to 1.00% of the average daily net assets
managed by FCEM of the Series on an annualized basis.

The identity and background of the portfolio managers for each Series is set
forth below. Unless indicated otherwise, each portfolio manager has acted in
that capacity since the commencement of investment operations of each Series.

<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<C> <S>
Emerging Growth Series John W. Ballen, an Executive Vice President of MFS, has
been employed by the Adviser as a portfolio manager
since 1984. Toni Y. Shimura, a Vice President of MFS,
has been employed by the Adviser as a portfolio manager
since 1987. Ms. Shimura became a portfolio manager of
the Series on November 30, 1995.

Value Series John F. Brennan, Jr., a Senior Vice President of MFS,
has been employed by the Adviser as a portfolio manager
since 1985.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<C> <S>
Research Series The Series is currently managed by a committee
comprised of various equity research analysts
employed by the Adviser.

Growth With Income Series Kevin R. Parke, an Executive Vice President of MFS,
has been employed by the Adviser as a portfolio
manager since 1985. John D. Laupheimer, a Senior
Vice President of MFS, has been employed by the
Adviser as a portfolio manager since 1981.

Total Return Series David M. Calabro, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1992. Mr. Calabro is the head of this portfolio
management team and a manager of the common stock
portion of the Series' portfolio. Geoffrey L.
Kurinsky, a Senior Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1987. Mr. Kurinsky is the manager of the Series'
fixed income securities. Judith N. Lamb, a Vice
President of MFS, has been employed by the Adviser as
a portfolio manager since 1992. Ms. Lamb is the
manager of the Series' convertible securities. Lisa
B. Nurme, a Vice President of MFS, has been employed
by the Adviser as a portfolio manager since 1987. Ms.
Nurme is a manager of the common stock portion of the
Series' portfolio. Maura A. Shaughnessy, a Vice
President of MFS, has been employed by the Adviser as
a portfolio manager since 1991. Ms. Shaughnessy is a
manager of the common stock portion of the Series'
portfolio. Each individual became a portfolio manager
of the Series on July 19, 1995.

Utilities Series Maura A. Shaughnessy, a Vice President of the
Adviser, has been employed by the Adviser as a
portfolio manager since 1991.

High Income Series Bernard Scozzafava, a Vice President of the Adviser,
has been employed by the Adviser as a portfolio
manager since 1989.

World Governments Series Stephen C. Bryant, a Senior Vice President of the
Adviser, has been employed by the Adviser as a
portfolio manager since 1987.

Emerging Markets Dr. Arnab Kumar Banerji, Chief Investment Officer of
Equity Series FCEM, has been employed by FCEM as a portfolio
manager since 1993, and has been employed by the
Adviser as a portfolio manager since October 1995.
Jeffery Chowdhry, a Director of FCEM, has been
employed by FCEM as a portfolio manager since 1994,
and has been employed by the Adviser as a portfolio
manager since February 1, 1997.

Bond Series Geoffrey L. Kurinsky, a Senior Vice President of the
Limited Maturity Series Adviser, has been employed by the Adviser as a
Money Market Series portfolio manager since 1987.
</TABLE>

MFS also serves as investment adviser to each of the other funds in the MFS
Family of Funds (the "MFS Funds") and to MFS(R) Municipal Income Trust, MFS
Multimarket Income Trust, MFS Government Markets Income Trust, MFS Intermedi-
ate Income Trust, MFS Charter Income Trust, MFS Special Value Trust, MFS In-
stitutional Trust, MFS Union Standard Trust, MFS/Sun Life Series Trust, and
seven variable accounts, each of which is a registered investment company es-
tablished by Sun Life Assurance Company of Canada (U.S.) ("Sun Life of Canada
(U.S.)") in connection with the sale of various fixed/variable annuity con-
tracts. MFS and its wholly owned subsidiary, MFS Asset Management, Inc., pro-
vide investment advice to substantial private clients.

43
<PAGE>

MFS is America's oldest mutual fund organization. MFS and its predecessor
organizations have a history of money management dating from 1924 and the
founding of the first mutual fund in the United States, Massachusetts Invest-
ors Trust. Net assets under the management of the MFS organization were ap-
proximately $60.4 billion on behalf of approximately 2.6 million investor ac-
counts as of June 30, 1997. As of such date, the MFS organization managed ap-
proximately $36.5 billion of assets invested in equity securities and approxi-
mately $19.6 billion of assets invested in fixed income securities. Approxi-
mately $4.1 billion of the assets managed by MFS are invested in securities of
foreign issuers and non-U.S. dollar-denominated securities of U.S. issuers.
MFS is a subsidiary of Sun Life of Canada (U.S.), which is a subsidiary of Sun
Life of Canada (U.S.) Holdings, Inc., which in turn is a wholly owned subsidi-
ary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors of MFS
are A. Keith Brodkin, Jeffrey L. Shames, Arnold D. Scott, John D. McNeil and
Donald A. Stewart. Mr. Brodkin is the Chairman, Mr. Shames is the President
and Mr. Scott is the Secretary and a Senior Executive Vice President of MFS.
Messrs. McNeil and Stewart are the Chairman and President, respectively, of
Sun Life. Sun Life, a mutual life insurance company, is one of the largest in-
ternational life insurance companies and has been operating in the United
States since 1895, establishing a headquarters office here in 1973. The execu-
tive officers of MFS report to the Chairman of Sun Life.

A. Keith Brodkin, the Chairman and a Director of MFS, is the Chairman and
President and a Trustee of the Trust. W. Thomas London, Stephen E. Cavan,
James R. Bordewick, Jr., James O. Yost, Ellen M. Moynihan and Mark E. Bradley,
all of whom are officers of MFS, are officers of the Trust.

MFS has established a strategic alliance with FCM. As part of this alliance,
the portfolio managers and investment analysts of MFS and FCM share their
views on a variety of investment related issues, such as the economy, securi-
ties markets, portfolio securities and their issuers, investment recommenda-
tions, strategies and techniques, risk analysis, trading strategies and other
portfolio management matters. MFS has access to the extensive international
equity investment expertise of FCM, and FCM has access to the extensive U.S.
equity investment expertise of MFS. MFS and FCM each have investment personnel
working in each other's offices in Boston and London, respectively.

In certain instances there may be securities which are suitable for a Se-
ries' portfolio as well as for portfolios of other clients of MFS or clients
of FCM. Some simultaneous transactions are inevitable when several clients re-
ceive investment advice from MFS and FCM, particularly when the same security
is suitable for more than one client. While in some cases this arrangement
could have a detrimental effect on the price or availability of the security
as far as a Series is concerned, in other cases, however, it may produce in-
creased investment opportunities for the Series.

From time to time, the Adviser may purchase, redeem and exchange shares of
any Series. The purchase by the Adviser of shares of a Series may have the ef-
fect of lowering that Series' expense ratio, while the redemption by the Ad-
viser of shares of a Series may have the effect of increasing that Series' ex-
pense ratio.

DISTRIBUTOR -- MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidi-
ary of MFS, is the distributor of shares of each Series and also serves as
distributor for certain of the other mutual funds managed by MFS.

ADMINISTRATOR -- MFS provides each Series with certain financial, legal,
compliance, shareholder communications and other administrative services pur-
suant to a Master Administrative Services Agreement dated March 1, 1997. Under
this Agreement, each Series pays MFS an administrative fee of up to 0.015% per
annum of its average daily net assets. This fee reimburses MFS for a portion
of the costs it incurs to provide such services.

SHAREHOLDER SERVICING AGENT -- MFS Service Center, Inc. (the "Shareholder
Servicing Agent"), a wholly owned subsidiary of MFS, performs transfer agency,
certain dividend disbursing agency and other services for each Series.

44
<PAGE>

8.INFORMATION CONCERNING SHARES OF EACH SERIES

PURCHASES AND REDEMPTIONS

The separate accounts of the Participating Insurance Companies place orders
to purchase and redeem shares of each Series based on, among other things, the
amount of premium payments to be invested and surrender and transfer requests
to be effected on that day pursuant to Contracts. Orders received by the Trust
are effected on days on which the Exchange is open for trading. For orders re-
ceived by the Trust before the close of regular trading on the Exchange (nor-
mally 4 p.m. eastern time), such purchases and redemptions of the shares of
each Series are effected at the respective net asset values per share deter-
mined as of the close of regular trading on the Exchange on that same day.
Participating Insurance Companies shall be the designee of the Trust for re-
ceipt of purchase and redemption orders from Contract holders and receipt by
such designee shall constitute receipt by the Trust; provided that the Trust
receives notice of such order by 9:30 a.m. eastern time on the next following
day on which the Exchange is open for trading. Payment for shares shall be by
federal funds transmitted by wire and must be received by 2:00 p.m. eastern
time on the next following day on which the Exchange is open for trading after
the purchase order is received. Redemption proceeds shall be by federal funds
transmitted by wire and shall be sent by 2:00 p.m. eastern time on the next
following day on which the Exchange is open for trading after the redemption
order is received. No fee is charged the shareholders when they redeem Series
shares.

The offering of shares of any Series may be suspended for a period of time
and each Series reserves the right to refuse any specific purchase order. Pur-
chase orders may be refused if, in the Adviser's opinion, they are of a size
that would disrupt the management of a Series. The Trust may suspend the right
of redemption of shares of any Series and may postpone payment for any period:
(i) during which the Exchange is closed other than customary weekend and holi-
day closings or during which trading on the Exchange is restricted; (ii) when
the SEC determines that a state of emergency exists which may make payment or
transfer not reasonably practicable; (iii) as the SEC may by order permit for
the protection of the security holders of the Trust; or (iv) at any time when
the Trust may, under applicable laws, rules and regulations, suspend payment
on the redemption of its shares.

Should any conflict between Contract holders arise which would require that
a substantial amount of net assets be withdrawn from any Series, orderly port-
folio management could be disrupted to the potential detriment of such Con-
tract.

NET ASSET VALUE

The net asset value per share of each Series is determined each day during
which the Exchange is open for trading. This determination is made once during
each such day as of the close of regular trading on the Exchange by deducting
the amount of the Series' liabilities from the value of the Series' assets and
dividing the difference by the number of shares of the Series outstanding.
Values of assets in a Series' portfolio are determined on the basis of their
market or other fair value (amortized cost value in the case of the Money Mar-
ket Series), as described in the SAI. All investments, assets and liabilities
are expressed in U.S. dollars based upon current currency exchange rates.

DISTRIBUTIONS

Substantially all of each Series' (except the Money Market Series') net in-
vestment income for any calendar year is declared as dividends and paid to its
shareholders as dividends on an annual basis. In addition, each Series may
make one or more distributions during the calendar year to its shareholders
from any net realized short-term and long-term capital gains.

45
<PAGE>

Substantially all of the Money Market Series' net investment income for any
calendar year is declared as dividends daily and paid to its shareholders
monthly. Generally, those dividends are distributed on the last business day
of the month in the form of additional shares of the Money Market Series at
the rate of one share (and fraction thereof) for each dollar (and fraction
thereof) of dividend income or, at the election of the shareholder, in cash.
Shares purchased become entitled to dividends declared as of the first day
following the date of investment.

Shareholders of any Series may elect to receive dividends and capital gain
distributions in either cash or additional shares.

TAX STATUS

Each Series of the Trust is treated as a separate entity for federal income
tax purposes. In order to minimize the taxes each Series would otherwise be
required to pay, each Series intends to qualify each year as a "regulated in-
vestment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended ("the Code"). Because each Series intends to distribute all of its net
investment income and net capital gains to its shareholders in accordance with
the timing requirements imposed by the Code, it is not expected that any Se-
ries will be required to pay federal income or excise taxes.

Shares of the Series are offered only to the Participating Insurance Compa-
nies' separate accounts that fund Contracts. See the applicable Contract pro-
spectus for a discussion of the federal income tax treatment of (1) the sepa-
rate accounts that purchase and hold Series shares and (2) the holders of the
Contracts that are funded through those accounts. In addition to the diversi-
fication requirements of Subchapter M of the Code, each Series also intends to
diversify its assets as required by Code Section 817(h)(1) and the regulations
thereunder. See "Tax Status" in the SAI.

DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

Each Series currently has one class of shares, entitled Shares of Beneficial
Interest (without par value). The Trust has reserved the right to create and
issue additional classes and series of shares, in which case each class of
shares of a series would participate equally in the earnings, dividends and
assets attributable to that class of that particular series. Shareholders are
entitled to one vote for each share held, and shares of each Series are enti-
tled to vote separately to approve investment advisory agreements or changes
in investment restrictions with respect to that Series, but shares of all Se-
ries vote together in the election of Trustees and selection of accountants.
Additionally, each Series will vote separately on any other matter that af-
fects solely that Series, but will otherwise vote together with all other Se-
ries on all other matters. The Trust does not intend to hold annual share-
holder meetings. The Declaration of Trust provides that a Trustee may be re-
moved from office in certain instances. See "Description of Shares, Voting
Rights and Liabilities" in the SAI.

Each share of a Series represents an equal proportionate interest in the Se-
ries with each share, subject to the liabilities of the particular Series.
Shares have no pre-emptive or conversion rights. Shares are fully paid and
non-assessable. Should a Series be liquidated, shareholders are entitled to
share pro rata in the net assets available for distribution to shareholders.
Shares will remain on deposit with the Shareholder Servicing Agent and certif-
icates will not be issued.

The Trust is an entity of the type commonly known as a "Massachusetts busi-
ness trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for its obliga-
tions. However, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both inadequate
insurance existed (e.g., fidelity bonding and omission insurance) and the
Trust itself was unable to meet its obligations.

46
<PAGE>

As of July 28, 1997, MFS Fund Distributors, Inc., Boston, MA, owns of record
26.58% of the Value Series' shares and 90.03% of the Limited Maturity Series'
shares; United of Omaha Life Insurance Company, Omaha, NE, owns of record
76.59% of the High Income Series' shares and 33.22% of the World Governments
Series' shares; Union Central Life Insurance Company--Group Annuity and Union
Central Life Insurance Company--Individual Annuity, Cincinnati, OH, own of
record 28.96% and 36.31%, respectively, of the Growth With Income Series'
shares; CG Variable Annuity--Separate Account II, Hartford, CT, owns of record
32.21% of the Total Return Series' and 26.09% of the Utilities Series' shares;
Ameritas Life Insurance Company--Separate Account VA-2 (Annuity), Lincoln, NE,
owns of record 26.97% of the Growth With Income Series' shares and 52.43% of
the Utilities Series' shares; Massachusetts Financial Services Company, Bos-
ton, MA, owns of record 98.84% of the Emerging Markets Equity Series' shares;
Kansas City Life Insurance Company--Variable Annuity, Kansas City, MO, owns of
record 31.71% of the Bond Series' shares; First Citicorp Life Insurance Compa-
ny, Dover, DE, owns of record 37.44% of the Bond Series' and 69.44% of the
Money Market Series' shares; Aetna Life Insurance and Annuity Company, Hart-
ford, CT, owns of record 40.48% of the Value Series' shares and 25.27% of the
Total Return Series' shares; Merrill Lynch Life Insurance Company, Jackson-
ville, FL, owns of record 41.37% of the Research Series' shares; and CUNA Mu-
tual Life Insurance Company--Variable Annuity Account, Waverly, IA, owns of
record 40.21% of the World Governments Series' shares.

PERFORMANCE INFORMATION

Each Series' performance may be quoted in advertising in terms of yield and,
except for the Money Market Series, total return. Performance is based on his-
torical results and is not intended to indicate future performance. Perfor-
mance quoted for a Series includes the effect of deducting that Series' ex-
penses, but may not include charges and expenses attributable to any particu-
lar insurance product. Excluding these charges from quotations of a Series'
performance has the effect of increasing the performance quoted. Performance
for a Series will vary based on, among other things, changes in market condi-
tions, the level of interest rates and the level of the Series' expenses. For
further information about the Series' performance for the fiscal year ended
December 31, 1996, please see the Series' Annual Reports. A copy of these An-
nual Reports may be obtained without charge by contacting the Shareholder Ser-
vicing Agent (see back cover for address and phone number).

MONEY MARKET SERIES: From time to time, quotations of the Money Market Se-
ries' "yield" and "effective yield" may be included in advertisements, sales
literature or reports to shareholders or prospective investors. The yield of
the Money Market Series refers to the net investment income generated by the
Series over a specified seven-day period (the ending date of which will be
stated). Included in "net investment income" is the amortization of market
premium or accretion of market and original issue discount. This income is
then "annualized." That is, the amount of income generated by the Series dur-
ing that week is assumed to be generated during each week over a 365 day pe-
riod and is shown as a percentage. The effective yield is expressed similarly
but, when annualized, the income earned by an investment in the Series is as-
sumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.

OTHER SERIES: From time to time, quotations of a Series' total return and
yield may be included in advertisements, sales literature or reports to share-
holders or prospective investors. The total return of a Series refers to re-
turn assuming an investment has been held in the Series for one year and for
the life of the Series (the ending date of which will be stated). The total
return quotations may be expressed in terms of average annual or cumulative
rates of return for all periods quoted. Average annual total return refers to
the average annual compound rate of return of an investment in a Series. Cumu-
lative total return represents the cumulative change in value of an investment
in a Series. Both will assume that all dividends and capital gains distribu-
tions were reinvested. The yield of a Series refers to net investment income
generated by a Series over a specified 30-day (or one month) period. This in-
come is then "annualized." That is, the amount of income generated by the Se-
ries during that 30-day (or one month) period is assumed to be generated over
a 12-month period and is shown as a percentage of net asset value.

47
<PAGE>

EXPENSES

The Trust pays the compensation of the Trustees who are not officers of MFS
and all expenses of each Series (other than those assumed by MFS) including
but not limited to: governmental fees; interest charges; taxes; membership
dues in the Investment Company Institute allocable to each Series; fees and
expenses of independent auditors, of legal counsel, and of any transfer agent,
registrar or dividend disbursing agent of each Series; expenses of repurchas-
ing and redeeming shares and servicing shareholder accounts; expenses of pre-
paring, printing and mailing prospectuses, periodic reports, notices and proxy
statements to shareholders and to governmental officers and commissions; bro-
kerage and other expenses connected with the execution, recording and settle-
ment of portfolio security transactions; insurance premiums; fees and expenses
of Investors Bank & Trust Company, the Trust's Custodian, for all services to
each Series, including safekeeping of funds and securities and maintaining re-
quired books and accounts; expenses of calculating the net asset value of
shares of each Series; and expenses of shareholder meetings. Expenses relating
to the issuance, registration and qualification of shares of each Series and
the preparation, printing and mailing of prospectuses are borne by each Series
except that the Distribution Agreement with MFD requires MFD to pay for pro-
spectuses that are to be used for sales purposes. Expenses of the Trust which
are not attributable to a specific Series are allocated between the Series in
a manner believed by management of the Trust to be fair and equitable.

Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear expenses of each of the Series such that the respective Series'
"Other Expenses," which are defined to include all expenses of the Series ex-
cept for management fees, brokerage fees and extraordinary expenses, do not
exceed the following percentages of the average daily net assets of the Series
(the "Maximum Percentage"): 0.40% for the Bond Series, 0.45% for the Limited
Maturity Series, 0.10% for the Money Market Series, and 0.25% for each remain-
ing Series. The obligation of MFS to bear these expenses for a Series termi-
nates on the last day of the Series' fiscal year in which its "Other Expenses"
are less than or equal to the Maximum Percentage. The payments made by MFS on
behalf of each Series under this arrangement are subject to reimbursement by
the Series to MFS, which will be accomplished by the payment of an expense re-
imbursement fee by the Series to MFS computed and paid monthly at a percentage
of the Series' average daily net assets for its then current fiscal year, with
a limitation that immediately after such payment the Series' "Other Expenses"
will not exceed the Maximum Percentage. This expense reimbursement by each Se-
ries to MFS terminates on the earlier of the date on which payments made by
the Series equal the prior payment of such reimbursable expenses by MFS or De-
cember 31, 2004.

SHAREHOLDER COMMUNICATIONS

Owners of Contracts issued by Participating Insurance Companies for which
shares of one or more Series are the investment vehicle will receive from the
Participating Insurance Companies semi-annual financial statements and audited
year-end financial statements certified by the Trust's independent certified
public accountants. Each report will show the investments owned by the Trust
and the valuations thereof as determined by the Trustees and will provide
other information about the Trust and its operations.

Participating Insurance Companies with inquiries regarding the Trust may
call the Trust's Shareholder Servicing Agent. (See back cover for address and
phone number.)

----------------

The SAI for the Trust, dated September 30, 1997, as amended or supplemented
from time to time, contains more detailed information about each of the Se-
ries, including information related to: (i) the investment policies and re-
strictions of each Series; (ii) the Trustees, officers and investment adviser
of the Trust; (iii) portfolio transactions; (iv) the shares of each Series,
including rights and liabilities of shareholders; (v) the method used to cal-
culate yield and total rate of return quotations of each Series; (vi) the de-
termination of net asset value of shares of each Series; and (vii) certain
voting rights of shareholders of each Series.

48
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS

The ratings of Moody's, S&P and Fitch represent their opinions as to the qual-
ity of various debt instruments. It should be emphasized, however, that rat-
ings are not absolute standards of quality. Consequently, debt instruments
with the same maturity, coupon and rating may have different yields while debt
instruments of the same maturity and coupon with different ratings may have
the same yield.

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exception-
ally stable margin and principal is secure. While the various protective ele-
ments are likely to change, such changes as can be visualized are most un-
likely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all stan-
dards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long-term risks appear somewhat larger than in Aaa securi-
ties.

A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving secu-
rity to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest pay-
ments and principal security appear adequate for the present but certain pro-
tective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteris-
tics and in fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position char-
acterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked shortcom-
ings.

C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

ABSENCE OF RATING: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

A-1
<PAGE>

Should no rating be assigned, the reason may be one of the following:

1. an application for rating was not received or accepted;

2. the issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy;

3. there is a lack of essential data pertaining to the issue or issuer; or

4. the issue was privately placed, in which case the rating is not pub-
lished in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

STANDARD & POOR'S RATINGS SERVICES

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay prin-
cipal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay inter-
est and repay principal. Whereas it normally exhibits adequate protection pa-
rameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to in-
adequate capacity to meet timely interest and principal payments. The BB rat-
ing category is also used for debt subordinated to senior debt that is as-
signed an actual or implied BBB- rating.

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.

CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

A-2
<PAGE>

C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI: The rating CI is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are jeopar-
dized.

PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the ad-
dition of a plus or minus sign to show relative standing within the major rat-
ing categories.

NR: Indicates that no public rating has been requested, that there is insuf-
ficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

A-1 AND P-1 COMMERCIAL PAPER RATINGS

Description of S&P, Fitch and Moody's highest commercial paper ratings:

The rating "A" is the highest commercial paper rating assigned by S&P and
Fitch, and issues so rated are regarded as having the greatest capacity for
timely payment. Issues in the "A" category are delineated with the numbers 1,
2 and 3 to indicate the relative degree of safety. The A-1 designation indi-
cates that the degree of safety regarding timely payment is either overwhelm-
ing or very strong. Those A-1 issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.

The rating P-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated P-1 have a superior ability for repayment. P-1 repayment capac-
ity will normally be evidenced by the following characteristics: (1) leading
market positions in well established industries; (2) high rates of return on
funds employed; (3) conservative capitalization structure with moderate reli-
ance on debt and ample asset protection; (4) broad margins in earnings cover-
age of fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of al-
ternate liquidity.

FITCH INVESTORS SERVICE, INC.

AAA: Bonds considered to be investment grade and of the highest credit qual-
ity. The obligor has an exceptionally strong ability to pay interest and pre-
pay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong, al-
though not quite as strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable to foreseeable fu-
ture developments, short-term debt of these issuers is generally rated "F-1+'.

A: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.

A-3
<PAGE>

BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is consid-
ered to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds and, therefore,
impair timely payment. The likelihood that the ratings of these bonds will
fall below investment grade is higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could as-
sist the obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity through-
out the life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest of principal.

PLUS(+) MINUS(-): Plus and minus signs are used with a rating symbol to in-
dicate the relative position of a credit within the rated category. Plus and
minus signs, however, are not used in the "AAA' category.

NR: indicates that Fitch does not rate the specific issue.

CONDITIONAL: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.

SUSPENDED: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.

WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.

FITCHALERT: Ratings are placed on FitchAlert to notify investors of an oc-
currence that is likely to result in a rating change and the likely direction
of such change. These are designated a "Positive," indicating a potential up-
grade, "Negative," for potential downgrade, or "Evolving," where ratings may
be lowered. FitchAlert is relatively short-term and should be resolved within
12 months.

DUFF & PHELPS CREDIT RATING CO.

AAA: Bonds considered to be investment grade and of the highest credit qual-
ity. The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and or very high credit quality.
The obligor's ability to pay interest and repay principal is very strong, al-
though not quite as strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable to foreseeable fu-
ture developments, short-term debt of these issuers is generally rated "D-1+'.

A-4
<PAGE>

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is consid-
ered to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will
fall below investment grade is higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business, and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.

CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within a rating category. Plus and
minus signs, however, are not used in the "AAA' category.

NR: Indicates that Duff & Phelps does not rate the specific issue.

DUFF & PHELPS SHORT-TERM RATINGS

D-1+: Highest certainty of timely payment. Short-term liquidity, including
internal operation factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term obli-
gations.

D-1: Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

D-1: High certainty of timely payment. Liquidity factors are strong and sup-
ported by good fundamental protection factors. Risk factors are very small.

D-2: Good certainty of timely payment. Liquidity factors and company funda-
mentals are sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.

D-3: Satisfactory liquidity and other protection factors qualify issues as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.

D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and market access
may be subject to a high degree of variation.

D-5: Issuer failed to meet scheduled principal and/or interest payments.

A-5
<PAGE>

APPENDIX B

PRINCIPAL SECTORS OF THE UTILITIES INDUSTRY

The principal sectors of the utility industry in which the Utilities Series
may invest are discussed below.

ELECTRIC -- The electric utility industry consists of companies that are en-
gaged principally in the generation, transmission and sale of electric energy,
although many also provide other energy-related services. Domestic electric
utility companies, in general, recently have been favorably affected by lower
fuel and financing costs and the full or near completion of major construction
programs. In addition, many of these companies recently have generated cash
flows in excess of current operating expenses and construction expenditures,
permitting some degree of diversification into unregulated businesses. Some
electric utilities have also taken advantage of the right to sell power out-
side of their traditional geographic areas. Electric utility companies histor-
ically have been subject to the risks associated with increases in fuel and
other operating costs, high interest costs on borrowings needed for capital
construction programs, costs associated with compliance with environmental and
safety regulations and changes in the regulatory climate.

In the U.S., the construction and operation of nuclear power facilities is
subject to increased scrutiny by, and evolving regulations of, the Nuclear
Regulatory Commission and state agencies having comparable jurisdiction. In-
creased scrutiny might result in higher operating costs and higher capital ex-
penditures, with the risk that the regulators may disallow inclusion of these
costs in rate authorizations or the risk that a company may not be permitted
to operate or complete construction of a facility. In addition, operators of
nuclear power plants may be subject to significant costs for disposal of nu-
clear fuel and for the de-commissioning of such plants.

TELECOMMUNICATIONS -- The telephone industry is large and highly concentrated.
Companies that distribute telephone services and provide access to the tele-
phone networks comprise the greatest portion of this segment. Telephone compa-
nies in the U.S. are still experiencing the effects of the breakup of American
Telephone & Telegraph Company, which occurred in 1984. Since 1984, companies
engaged in telephone communication services have expanded their non-regulated
activities into other businesses, including cellular telephone services, data
processing, equipment retailing, computer software and hardware services, and
financial services. This expansion has provided significant opportunities for
certain telephone companies to increase their earnings and dividends at faster
rates than had been allowed in traditionally regulated businesses. Increasing
competition, technological innovations and other structural changes, however,
could adversely affect the profitability of such utilities.

GAS -- Gas transmission companies and gas distribution companies are also un-
dergoing significant changes. In the U.S., interstate transmission companies
are regulated by the Federal Energy Regulatory Commission, which is reducing
its regulation of the industry. Many companies have diversified into oil and
gas exploration and development, making returns more sensitive to energy pric-
es. In the recent decade, gas utility companies have been adversely affected
by disruptions in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Adviser, however, envi-
ronmental considerations could improve the gas industry outlook in the future.
For example, natural gas is the cleanest of the hydrocarbon fuels, and this
may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal.

WATER -- Water supply utilities are companies that collect, purify, distribute
and sell water. In the U.S. and around the world, the industry is highly frag-
mented because most of the supplies are owned by local authorities. Companies
in this industry are generally mature and are experiencing little or no per
capita volume growth.

----------------

There can be no assurance that the positive developments noted above, in-
cluding those relating to changing regulation, will occur or that risk factors
other than those noted above will not develop in the future.

B-1
<PAGE>

APPENDIX C

MFS HIGH INCOME SERIES
PORTFOLIO COMPOSITION CHART
FOR FISCAL YEAR ENDED DECEMBER 31, 1996

The table below shows the percentages of the Series' assets at December 31,
1996 invested in bonds assigned to the various rating categories by S&P,
Moody's (provided only for bonds not rated by S&P), Fitch (provided only for
bonds not rated by S&P or Moody's) and Duff & Phelps (provided only for bonds
not rated by S&P, Moody's or Fitch) and in unrated bonds determined by MFS to
be of comparable quality. For split rated bonds, the S&P rating is used. When
an S&P rating is unavailable, secondary sources are selected in the following
order: Moody's, Fitch and Duff & Phelps.

<TABLE>
<CAPTION>
UNRATED BONDS
COMPILED OF COMPARABLE
RATING RATINGS QUALITY TOTAL
------ -------- ------------- -----
<S> <C> <C> <C>
AAA/Aaa
AA/Aa
A/A
BBB/Baa
BB/Ba 12.02 12.02
B/B 69.41 3.93 73.34
CCC/Caa 4.49 4.49
CC/Ca
C/C
Default .58 .58
----- ---- -----
TOTAL 86.50 3.93 90.43
</TABLE>

The chart does not necessarily indicate what the composition of the Series'
portfolio will be in subsequent years. Rather, the Series' investment objec-
tive, policies and restrictions indicate the extent to which the Series may
purchase securities in the various categories.

C-1
<PAGE>

INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-8730

DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000

CUSTODIAN
Investors Bank & Trust Company
89 South Street, Boston, MA 02111

DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 343-2829, ext. 3500

MAILING ADDRESS:
P.O. Box 1400, Boston, MA 02104-9985

INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110

LOGO

MFS(R) VARIABLE INSURANCE TRUST

500 Boylston Street, Boston, MA 02116

--------------------------

MFS(R) VARIABLE INSURANCE TRUST

LOGO

PROSPECTUS

SEPTEMBER 30, 1997

--------------------------
<PAGE>

DRAFT #3
STATEMENT OF
MFS(R) VARIABLE (7/18/97)
ADDITIONAL INFORMATION
INSURANCE TRUST SM

September 30, 1997
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. General Information and Definitions.................................. 2
2. Investment Techniques................................................ 2
3. Investment Restrictions.............................................. 20
4. Management of the Trust.............................................. 21
Trustees............................................................. 21
Officers............................................................. 21
Trustee Compensation Table........................................... 23
Investment Adviser................................................... 24
Investment Advisory Agreement........................................ 24
Administrator........................................................ 25
Custodian............................................................ 25
Shareholder Servicing Agent.......................................... 25
Distributor.......................................................... 26
5. Portfolio Transactions and Brokerage Commissions..................... 26
6. Tax Status........................................................... 27
7. Net Income and Distributions......................................... 28
8. Determination of Net Asset Value; Performance Information............ 29
9. Description of Shares, Voting Rights and Liabilities................. 31
10. Independent Auditors and Financial Statements........................ 32
11. Appendix A--Performance Quotations................................... A-1
</TABLE>

MFS(R) VARIABLE INSURANCE TRUST SM
500 Boylston Street, Boston, Massachusetts 02116
(617) 954-5000

This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to in-
vestors but which is not necessarily included in the Trust's Prospectus, dated
September 30, 1997, as supplemented from time to time. This SAI should be read
in conjunction with the Prospectus, a copy of which may be obtained without
charge by contacting the Shareholder Servicing Agent (see back cover for ad-
dress and phone number).

THIS SAI RELATES TO THE TWELVE SERIES OF THE TRUST IDENTIFIED ON PAGE 2 HERE-
OF. SHARES OF THESE SERIES ARE OFFERED TO SEPARATE ACCOUNTS OF CERTAIN INSUR-
ANCE COMPANIES ("PARTICIPATING INSURANCE COMPANIES") THAT FUND VARIABLE ANNU-
ITY AND VARIABLE LIFE INSURANCE CONTRACTS ("CONTRACTS"). PARTICIPATING INSUR-
ANCE COMPANIES MAY CHOOSE TO OFFER AS INVESTMENT OPTIONS TO THEIR CONTRACT
HOLDERS LESS THAN ALL OF THE TRUST'S SERIES, IN WHICH CASE THE TRUST'S PRO-
SPECTUS FOR THOSE PARTICIPATING INSURANCE COMPANIES WILL BE REVISED TO DE-
SCRIBE ONLY THE SERIES OFFERED. THEREFORE, WHILE CERTAIN VERSIONS OF THE
TRUST'S PROSPECTUS WILL DESCRIBE ONLY CERTAIN OF THE TRUST'S SERIES, THIS SAI
INCLUDES INFORMATION ON OTHER SERIES WHICH ARE NOT OFFERED PURSUANT TO SUCH
PROSPECTUSES; IN WHICH CASE INFORMATION CONCERNING THESE OTHER SERIES CON-
TAINED HEREIN SHOULD BE DISREGARDED.

THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
<PAGE>

1. GENERAL INFORMATION AND DEFINITIONS

MFS Variable Insurance Trust (the "Trust") is a professionally managed open-
end management investment company (a "mutual fund") consisting of twelve sepa-
rate series: MFS Emerging Growth Series (the "Emerging Growth Series"), MFS
Value Series (the "Value Series"), MFS Research Series (the "Research Se-
ries"), MFS Growth With Income Series (the "Growth With Income Series"), MFS
Total Return Series (the "Total Return Series"), MFS Utilities Series (the
"Utilities Series"), MFS High Income Series (the "High Income Series"), MFS
World Governments Series (the "World Governments Series"), MFS/Foreign & Colo-
nial Emerging Markets Equity Series (the "Emerging Markets Equity Series"),
MFS Bond Series (the "Bond Series"), MFS Limited Maturity Series (the "Limited
Maturity Series") and MFS Money Market Series (the "Money Market Series") (in-
dividually or collectively hereinafter referred to as a "Series" or the "Se-
ries"). The Emerging Growth Series was previously known as the "OTC Series"
until its name was changed on June 1, 1995. The Value Series was previously
known as the "Growth Series" until its name was changed on April 25, 1996. The
Emerging Markets Equity Series was previously known as the "Strategic Fixed
Income Series" until its name was changed on July 31, 1997.

Each Series' investment adviser and distributor is, respectively, Massachu-
setts Financial Services Company ("MFS" or the "Adviser") and MFS Fund Dis-
tributors, Inc. ("MFD" or the "Distributor"), each a Delaware corporation.

The Emerging Markets Equity Series has retained as its sub-advisers Foreign &
Colonial Management Ltd. ("FCM") and Foreign & Colonial Emerging Markets Lim-
ited ("FCEM") (collectively, the "Sub-Adviser"), both of which are located at
Exchange House, Primrose Street, London EC2A 2NY, United Kingdom.

2. INVESTMENT TECHNIQUES

EMERGING MARKETS: The Emerging Markets Equity Series may invest up to 100% of
its assets in securities of government, government-related, supranational and
corporate issuers located in emerging markets. Each other Series may invest in
emerging market securities to the extent that they can invest in foreign secu-
rities. Such investments entail significant risks as described in the Prospec-
tus under the caption "Additional Risk Factors" and as more fully described
below.

COMPANY DEBT -- Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the pri-
vate sector through the ownership or control of many companies, including some
of the largest in any given country. As a result, government actions in the
future could have a significant effect on economic conditions in emerging mar-
kets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
in the Series' portfolio. Expropriation, confiscatory taxation, national-
ization, political, economic or social instability or other similar develop-
ments have occurred frequently over the history of certain emerging markets
and could adversely affect the Series' assets should these conditions recur.

SOVEREIGN DEBT -- Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a pay-
ment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary
Fund and the political constraints to which a governmental entity may be sub-
ject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest on their debt. The commitment on the part of these gov-
ernments, agencies and others to make such disbursements may be conditioned on
a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may fur-
ther impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their sover-
eign debt. Holders of sovereign debt (including the Series) may be requested
to participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign
debt on which governmental entities have defaulted may be collected in whole
or in part.

Emerging market governmental issuers are among the largest debtors to commer-
cial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers
have not been able to make payments of interest on or principal of debt obli-
gations as those payments have come due. Obligations arising from past re-
structuring agreements may affect the economic performance and political and
social stability of those issuers.

The ability of emerging market governmental issuers to make timely payments on
their obligations is likely to be influenced strongly by the issuer's balance
of payments, including export performance, and its access to international
credits and investments. An emerging market whose exports are concentrated in
a few commodities could be vulnerable to a decline in the international prices
of one or more of those commodities. Increased protectionism on the part of an
emerging market's trading partners could also adversely affect the country's
exports and tarnish its trade account surplus, if any. To the extent that
emerging markets receive payment for their exports in currencies
2
<PAGE>

other than dollars or non-emerging market currencies, its ability to make debt
payments denominated in dollars or non-emerging market currencies could be af-
fected.

To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral or-
ganizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of emerging markets to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of emerging market country govern-
mental issuers to make payments on their obligations. In addition, the cost of
servicing emerging market debt obligations can be affected by a change in in-
ternational interest rates since the majority of these obligations carry in-
terest rates that are adjusted periodically based upon international rates.

Another factor bearing on the ability of emerging market countries to repay
debt obligations is the level of international reserves of the country. Fluc-
tuations in the level of these reserves affect the amount of foreign exchange
readily available for external debt payments and thus could have a bearing on
the capacity of emerging market countries to make payments on these debt obli-
gations.

LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT -- The securities markets of
emerging market countries are substantially smaller, less developed, less liq-
uid and more volatile than the major securities markets in the U.S. Disclosure
and regulatory standards are in many respects less stringent than U.S stan-
dards. Furthermore, there is a lower level of monitoring and regulation of the
markets and the activities of investors in such markets.

The limited size of many emerging market securities markets and limited trad-
ing volume in the securities of emerging market issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of
the securities issuers. For example, limited market size may cause

prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on in-depth funda-
mental analysis, may decrease the value and liquidity of portfolio securities.

The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may
be substantially curtailed and prices for the Series' securities in such mar-
kets may not be readily available. The Trust may suspend redemption of its
shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly, if the Series be-
lieves that appropriate circumstances exist, it will promptly apply to the SEC
for a determination that an emergency is present. During the period commencing
from the Series' identification of such condition until the date of the SEC
action, the Series' securities in the affected markets will be valued at fair
value determined in good faith by or under the direction of the Board of
Trustees.

DEFAULT; LEGAL RECOURSE -- The Series may have limited legal recourse in the
event of a default with respect to certain debt obligations it may hold. If
the issuer of a fixed-income security owned by the Series defaults, the Series
may incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities,
remedies from defaults on debt obligations issued by emerging market govern-
ments, unlike those on private debt, must be pursued in the courts of the de-
faulting party itself. The Series' ability to enforce its rights against pri-
vate issuers may be limited. The ability to attach assets to enforce a judg-
ment may be limited. Legal recourse is therefore somewhat diminished. Bank-
ruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of con-
siderable importance. In addition, no assurance can be given that the holders
of commercial bank debt may not contest payments to the holders of debt obli-
gations in the event of default under commercial bank loan agreements.

INFLATION -- Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse ef-
fects on the economies and securities markets of certain emerging market coun-
tries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.

WITHHOLDING -- Income from securities held by the Series could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the Series makes its investments. The Series' net asset
value may also be affected by changes in the rates or methods of taxation ap-
plicable to the Series or to entities in which the Series has invested. The
Adviser and the Sub-Adviser will consider the cost of any taxes in determining
whether to acquire any particular investments, but can provide no assurance
that the taxes will not be subject to change.

FOREIGN CURRENCIES -- The Series may invest in securities denominated in for-
eign currencies. Accordingly, changes in the value of these currencies against
the U.S. dollar may result in corresponding changes in the U.S. dollar value
of the Series' assets denominated in those currencies. The Series may attempt
to minimize the impact of these changes to the U.S. dollar value of the Se-
ries' portfolio by engaging in certain hedging practices, such as entering
into Futures Contracts and Options on Foreign Securities as described below.

Some emerging market countries also may have managed currencies, which are not
free floating against the U.S. dollar. In

3
<PAGE>

addition, there is risk that certain emerging market countries may restrict
the free conversion of their currencies into other currencies. Further, cer-
tain emerging market currencies may not be internationally traded. Certain of
these currencies have experienced a steep devaluation relative to the U.S.
dollar. Any devaluations in the currencies in which the Series' portfolio se-
curities are denominated may have a detrimental impact on the Series' net as-
set value.

INVESTMENT IN OTHER INVESTMENT COMPANIES: The Emerging Markets Equity Series'
investment in other investment companies, as described in the Prospectus, is
limited in amount by the Investment Company Act of 1940, as amended (the "1940
Act"), and applicable state securities laws. Such investment may also involve
the payment of substantial premiums above the value of such investment compa-
nies' portfolio securities, and the total return on such investment will be
reduced by the operating expenses and fees of such other investment companies,
including advisory fees.

LENDING OF PORTFOLIO SECURITIES: Each of the Series (except the Money Market
Series) may seek to increase its income by lending portfolio securities. Such
loans will usually be made only to member firms of the New York Stock Exchange
(the "Exchange") (and subsidiaries thereof) and member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, United States ("U.S.") Treasury securities or an irrevocable letter
of credit maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Series would have the right to call a
loan and obtain the securities loaned at any time on customary industry set-
tlement notice (which will not usually exceed five business days). For the du-
ration of a loan, the Series would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would
also receive compensation from the investment of cash collateral. The Series
would not, however, have the right to vote any securities having voting rights
during the existence of the loan, but the Series would call the loan in antic-
ipation of an important vote to be taken among holders of the securities or of
the giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit there are risks of delay in re-
covery or even loss of rights in the collateral should the borrower of the se-
curities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 10% of the value of a Series' net assets.

REPURCHASE AGREEMENTS: Each of the Series may enter into repurchase agreements
with sellers who are member firms (or a subsidiary thereof) of the Exchange or
members of the Federal Reserve System, recognized primary U.S. Government se-
curities dealers or institutions which the Adviser has determined to be of
comparable creditworthiness. The securities that a Series purchases and holds
through its agent are U.S. Government securities, the values of which are
equal to or greater than the repurchase price agreed to be paid by the seller.
The repurchase price may be higher than the purchase price, the difference be-
ing income to the Series, or the purchase and repurchase prices may be the
same, with interest at a standard rate due to the Series together with the re-
purchase price on repurchase. In either case, the income to the Series is un-
related to the interest rate on the Government securities.

The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, a Series will have the right to liquidate the securities. If at
the time the Series is contractually entitled to exercise its right to liqui-
date the securities, the seller is subject to a proceeding under the bank-
ruptcy laws or its assets are otherwise subject to a stay order, the Series'
exercise of its right to liquidate the securities may be delayed and result in
certain losses and costs to the Series. Each Series has adopted and follows
procedures which are intended to minimize the risks of repurchase agreements.
For example, each Series only enters into repurchase agreements after the Ad-
viser has determined that the seller is creditworthy, and the Adviser monitors
that seller's creditworthiness on an ongoing basis. Moreover, under such
agreements, the value of the securities (which are marked to market every
business day) is required to be greater than the repurchase price, and a Se-
ries has the right to make margin calls at any time if the value of the secu-
rities falls below the agreed upon margin.

"WHEN-ISSUED" SECURITIES: Each of the Series (except the Research Series, the
World Governments Series and the Money Market Series) may purchase securities
on a "when-issued" or on a "forward delivery" basis. Although a Series is not
limited as to the amount of these securities for which it may have commitments
to purchase on such bases, it is expected that under normal circumstances the
Series will not commit more than 20% of its total assets to such purchases.
When a Series commits to purchase these securities on a "when-issued" or "for-
ward delivery" basis, it will set up procedures consistent with the General
Statement of Policy of the Securities and Exchange Commission (the "SEC") con-
cerning such purchases. Since that policy currently recommends that an amount
of the Series' assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, the Series will always have
liquid assets sufficient to cover any commitments or to limit any potential
risk. Although no Series intends to make such purchases for speculative pur-
poses and each Series intends to adhere to the provisions of the SEC policy,
purchases of securities on such bases may involve more risk than other types
of purchases. For example, a Series may have to sell assets which have been
set aside in order to meet redemptions. Also, if a Series determines it is
necessary to sell the "when-issued" or "forward delivery" securities before
delivery, the Series may incur a loss because of market fluctuations since the
time the commitment to purchase such securities was made.

4
<PAGE>

MORTGAGE "DOLLAR ROLL" TRANSACTIONS: Each of the Total Return Series, the Bond
Series, the World Governments Series, the Limited Maturity Series, the High
Income Series and the Utilities Series may enter into mortgage "dollar roll"
transactions pursuant to which it sells mortgage-backed securities for deliv-
ery in the future and simultaneously contracts to repurchase substantially
similar securities on a specified future date. The Series record these trans-
actions as sale and purchase transactions, rather than as borrowing transac-
tions. During the roll period, a Series foregoes principal and interest paid
on the mortgage-backed securities. A Series is compensated for the lost inter-
est by the difference between the current sales price and the lower price for
the future purchase (often referred to as the "drop") as well as by the inter-
est earned on the cash proceeds of the initial sale. A Series may also be com-
pensated by receipt of a commitment fee. In the event that the party with whom
the Series contracts to replace substantially similar securities on a future
date fails to deliver such securities, the Series may not be able to obtain
such securities at the price specified in such contract and thus may not bene-
fit from the price differential between the current sales price and the repur-
chase price.

CORPORATE ASSET-BACKED SECURITIES: Each of the Emerging Growth Series, the To-
tal Return Series, the Bond Series, the Limited Maturity Series, the High In-
come Series and the Utilities Series may invest in corporate asset-backed se-
curities. These securities, issued by trusts and special purpose corporations,
are backed by a pool of assets, such as credit card and automobile loan re-
ceivables, representing the obligations of a number of different parties.

Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing
the balance due. Most issuers of automobile receivables permit the servicers
to retain possession of the underlying obligations. If the servicer were to
sell these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related auto-
mobile receivables. In addition, because of the large number of vehicles in-
volved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in all of the obligations backing such receivables. There-
fore, there is the possibility that recoveries on repossessed collateral may
not, in some cases, be available to support payments on these securities. The
underlying assets (e.g., loans) are also subject to prepayments which shorten
the securities weighted average life and may lower their return.

Corporate asset-backed securities are often backed by a pool of assets repre-
senting the obligations of a number of different parties. To lessen the effect
of failures by obligors on underlying assets to make payments, the securities
may contain elements of credit support which fall into two categories: (i) li-
quidity protection and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs
in a timely fashion. Protection against losses resulting from ultimate default
ensures payment through insurance policies or letters of credit obtained by
the issuer or sponsor from third parties. A Series will not pay any additional
or separate fees for credit support. The degree of credit support provided for
each issue is generally based on historical information respecting the level
of credit risk associated with the underlying assets. Delinquency or loss in
excess of that anticipated or failure of the credit support could adversely
affect the return on an investment in such a security.

COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH SECURITIES:
Each of the Bond Series, the World Governments Series, the Limited Maturity
Series, the High Income Series and the Utilities Series may invest a portion
of its assets in collateralized mortgage obligations or "CMOs", which are debt
obligations collateralized by mortgage loans or mortgage pass-through securi-
ties (such collateral referred to collectively as "Mortgage Assets"). Unless
the context indicates otherwise, all references herein to CMOs include
multiclass pass-through securities.

Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable
ways. In a common structure, payments of principal, including any principal
prepayments, on the Mortgage Assets are applied to the classes of the series
of a CMO in the order of their respective stated maturities or final distribu-
tion dates, so that no payment of principal will be made on any class of CMOs
until all other classes having an earlier stated maturity or final distribu-
tion date have been paid in full. Certain CMOs may be stripped (securities
which provide only the principal or interest factor of the underlying securi-
ty). See "Stripped Mortgage-Backed Securities" below for a discussion of the
risks of investing in these stripped securities and of investing in classes
consisting of principals of interest payments or principal payments.

Each of the Bond Series, the World Governments Series, the Limited Maturity
Series, the High Income Series and the Utilities Series may also invest in
parallel pay CMOs and Planned Amortization Class CMOs ("'PAC Bonds"). Parallel
pay CMOs are structured to provide payments of principal on each payment date
to more than one class. These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution date of each class,
which, as with other CMO structures, must be retired by its stated maturity
date or final distribution date but may be retired earlier.

5
<PAGE>

STRIPPED MORTGAGE-BACKED SECURITIES: Each of the Bond Series, the World Gov-
ernments Series and the High Income Series may invest a portion of its assets
in stripped mortgage-backed securities ("SMBS") which are derivative
multiclass mortgage securities issued by agencies of or instrumentalities of
the U.S. Government, or by private originators of, or investors in mortgage
loans, including savings and loan institutions, mortgage banks, commercial
banks and investment banks.

SMBS are usually structured with two classes that receive different propor-
tions of the interest and principal distributions from a pool of mortgage as-
sets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the Mortgage Assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class) while the other class will receive all of the principal (the prin-
cipal-only or "PO" class). The yield to maturity on an IO is extremely sensi-
tive to the rate of principal payments, including prepayments on the related
underlying Mortgage Assets, and a rapid rate of principal payments may have a
material adverse effect on such security's yield to maturity. If the under-
lying Mortgage Assets experience greater than anticipated prepayments of prin-
cipal, a Series may fail to fully recoup its initial investment in these secu-
rities. The market value of the class consisting primarily or entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. Because SMBS were only recently introduced, established trad-
ing markets for these securities have not yet developed, although the securi-
ties are traded among institutional investors and investment banking firms.

LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS: Each of the Emerging Growth
Series, the Value Series, the Total Return Series, the Emerging Markets Equity
Series and the High Income Series may purchase loan participations and other
direct indebtedness. In purchasing a loan participation, a Series acquires
some or all of the interest of a bank or other lending institution in a loan
to a corporate borrower. Many such loans are secured, although some may be
unsecured. Such loans may be in default at the time of purchase. Loans and
other direct indebtedness that are fully secured offer a Series more protec-
tion than an unsecured loan in the event of non-payment of scheduled interest
or principal. However, there is no assurance that the liquidation of collat-
eral from a secured loan or other direct indebtedness would satisfy the corpo-
rate borrower's obligation, or that the collateral can be liquidated.

These loans and other direct indebtedness are made generally to finance inter-
nal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs and
other corporate activities. Such loans and other direct indebtedness loans are
typically made by a syndicate of lending institutions, represented by an agent
lending institution which has negotiated and structured the loan and is re-
sponsible for collecting interest, principal and other amounts due on its own
behalf and on behalf of the others in the syndicate, and for enforcing its and
their other rights against the borrower. Alternatively, such loans and other
direct indebtedness may be structured as a novation, pursuant to which a Se-
ries would assume all of the rights of the lending institution in a loan or as
an assignment, pursuant to which the Series would purchase an assignment of a
portion of a lender's interest in a loan or other direct indebtedness either
directly from the lender or through an intermediary. A Series may also pur-
chase trade or other claims against companies, which generally represent money
owed by the company to a supplier of goods or services. These claims may also
be purchased at a time when the company is in default.

Certain of the loan participations and the other direct indebtedness acquired
by a Series may involve revolving credit facilities or other standby financing
commitments which obligate the Series to pay additional cash on a certain date
or on demand. These commitments may have the effect of requiring a Series to
increase its investment in a company at a time when the Series might not oth-
erwise decide to do so (including at a time when the company's financial con-
dition makes it unlikely that such amounts will be repaid). To the extent that
a Series is committed to advance additional funds, it will at all times hold
and maintain in a segregated account liquid assets in an amount sufficient to
meet such commitments.

A Series' ability to receive payment of principal, interest and other amounts
due in connection with these investments will depend primarily on the finan-
cial condition of the borrower. In selecting the loan participations and other
direct indebtedness which a Series will purchase, the Adviser will rely upon
its own (and not the original lending institution's) credit analysis of the
borrower. As the Series may be required to rely upon another lending institu-
tion to collect and pass onto the Series amounts payable with respect to the
loan and to enforce the Series' rights under the loan and other direct indebt-
edness, an insolvency, bankruptcy or reorganization of the lending institution
may delay or prevent the Series from receiving such amounts. In such cases,
the Series will evaluate as well the creditworthiness of the lending institu-
tion and will treat both the borrower and the lending institution as an "issu-
er" of the loan participation for purposes of certain investment restrictions
pertaining to the diversification of the Series' portfolio investments. The
highly leveraged nature of many such loans and other direct indebtedness may
make such loans and other direct indebtedness especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans and other
direct indebtedness may involve additional risk to a Series. For example, if a
loan or other direct indebtedness is foreclosed, a Series could become part
owner of any collateral, and would bear the costs and liabilities associated
with owning and disposing of the collateral. In addition, it is conceivable
that under emerging legal theories of lender liability, a Series could be held
liable as a co-lender. It is unclear whether loans and other forms of direct
indebtedness offer securities law protections against fraud and misrepresenta-
tion. In the absence of definitive regulatory guidance, each Series relies on
the Adviser's research in an attempt to avoid situations where fraud and mis-
representation could adversely affect a Series. In addition, loan participa-

6
<PAGE>

tions and other direct investments may not be in the form of securities or may
be subject to restrictions on transfer, and only limited opportunities may ex-
ist to resell such instruments. As a result, a Series may be unable to sell
such investments at an opportune time or may have to resell them at less than
fair market value. To the extent that the Adviser determines that any such in-
vestments are illiquid, a Series will include them in the investment limita-
tions described below.

MORTGAGE PASS-THROUGH SECURITIES: Each of the Total Return Series, the Bond
Series, the World Governments Series, the Limited Maturity Series and the High
Income Series may invest in mortgage pass-through securities. The Utilities
Series may invest in mortgage pass-through securities that are securities is-
sued or guaranteed as to principal and interest by the U.S. Government, its
agencies, authorities or instrumentalities. Mortgage pass-through securities
are securities representing interests in "pools" of mortgage loans. Monthly
payments of interest and principal by the individual borrowers on mortgages
are passed through to the holders of the securities (net of fees paid to the
issuer or guarantor of the securities) as the mortgages in the underlying
mortgage pools are paid off. The average lives of mortgage pass-throughs are
variable when issued because their average lives depend on prepayment rates.
The average life of these securities is likely to be substantially shorter
than their stated final maturity as a result of unscheduled principal prepay-
ment. Prepayments on underlying mortgages result in a loss of anticipated in-
terest, and all or part of a premium if any has been paid, and the actual
yield (or total return) to the Series may be different than the quoted yield
on the securities. Mortgage premiums generally increase with falling interest
rates and decrease with rising interest rates. Like other fixed income securi-
ties, when interest rates rise the value of mortgage pass-through security
generally will decline; however, when interest rates are declining, the value
of mortgage pass-through securities with prepayment features may not increase
as much as that of other fixed-income securities.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA"); or guar-
anteed by agencies or instrumentalities of the U.S. Government (such as the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mort-
gage Corporation, ("FHLMC") which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations). Mort-
gage pass-through securities may also be issued by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage in-
surance companies, mortgage bankers and other secondary market issuers). Some
of these mortgage pass-through securities may be supported by various forms of
insurance or guarantees.

Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates. In-
stead, these securities provide a monthly payment which consists of both in-
terest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their mortgage
loans, net of any fees paid to the issuer or guarantor of such securities. Ad-
ditional payments are caused by prepayments of principal resulting from the
sale, refinancing or foreclosure of the underlying property, net of fees or
costs which may be incurred. Some mortgage pass-through securities (such as
securities issued by the GNMA) are described as "modified pass-through." These
securities entitle the holder to receive all interests and principal payments
owed on the mortgages in the mortgage pool, net of certain fees, at the sched-
uled payment dates regardless of whether the mortgagor actually makes the pay-
ment.

The principal governmental guarantor of mortgage pass-through securities is
GNMA. GNMA is a wholly owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the
full faith and credit of the U.S. Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of FHA-insured or VA-guaranteed mortgages. These guarantees,
however, do not apply to the market value or yield of mortgage pass-through
securities. GNMA securities are often purchased at a premium over the maturity
value of the underlying mortgages. This premium is not guaranteed and will be
lost if prepayment occurs.

Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include FNMA and FHLMC. FNMA is
a government-sponsored corporation owned entirely by private stockholders. It
is subject to general regulation by the Secretary of Housing and Urban Devel-
opment. FNMA purchases conventional residential mortgages (i.e., mortgages not
insured or guaranteed by any governmental agency) from a list of approved
seller/servicers which include state and federally chartered savings and loan
associations, mutual savings banks, commercial banks, credit unions and mort-
gage bankers. Pass-through securities issued by FNMA are guaranteed as to
timely payment by FNMA of principal and interest.

FHLMC is also a government-sponsored corporation owned by private stockhold-
ers. FHLMC issues Participation Certificates ("PCs") which represent interests
in conventional mortgages (i.e., not federally insured or guaranteed) for
FHLMC's national portfolio. FHLMC guarantees timely payment of interest and
ultimate collection of principal regardless of the status of the underlying
mortgage loans.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans. Such issuers may also be the originators
and/or servicers of the underlying mortgage-related securities. Pools

7
<PAGE>

created by such non-governmental issuers generally offer a higher rate of in-
terest than government and government-related pools because there are no di-
rect or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of mortgage loans in
these pools may be supported by various forms of insurance or guarantees, in-
cluding individual loan, title, pool and hazard insurance and letters of cred-
it. The insurance and guarantees are issued by governmental entities, private
insurers and the mortgage poolers. There can be no assurance that the private
insurers or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. A Series may also buy mortgage-related securities
without insurance or guarantees.

INDEXED SECURITIES: Each of the Value Series, the Total Return Series, the
High Income Series, the Bond Series, the Utilities Series, the World Govern-
ments Series and the Emerging Markets Equity Series may purchase securities
whose prices are indexed to the prices of other securities, securities indi-
ces, currencies, precious metals or other commodities, or other financial in-
dicators. Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity (i.e., principal value) or coupon rate is de-
termined by reference to a specific instrument or statistic. Gold-indexed se-
curities, for example, typically provide for a maturity value that depends on
the price of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are short-
term to intermediate-term debt securities whose maturity values or interest
rates are determined by reference to the values of one or more specified for-
eign currencies, and may offer higher yields than U.S. dollar-denominated se-
curities of equivalent issuers. Currency-indexed securities may be positively
or negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs sim-
ilarly to a foreign-denominated instrument, or their maturity value may de-
cline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-in-
dexed securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on the perfor-
mance of the security, currency, or other instrument to which they are in-
dexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline sub-
stantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S. govern-
ment agencies.

SWAPS AND RELATED TRANSACTIONS: Each of the High Income Series, the World Gov-
ernments Series, the Emerging Markets Equity Series, the Bond Series and the
Limited Maturity Series may enter into interest rate swaps, currency swaps and
other types of available swap agreements, such as caps, collars and floors.

Swap agreements may be individually negotiated and structured to include expo-
sure to a variety of different types of investments or market factors. Depend-
ing on their structure, swap agreements may increase or decrease a Series' ex-
posure to long or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other fac-
tors such as securities prices or inflation rates. Swap agreements can take
many different forms and are known by a variety of names. A Series is not lim-
ited to any particular form or variety of swap agreement if MFS determines it
is consistent with the Series' investment objective and policies.

Each of the High Income Series, the World Governments Series, the Emerging
Markets Equity Series, the Bond Series and the Limited Maturity Series will
maintain cash or appropriate liquid assets with its custodian to cover its
current obligations under swap transactions. If a Series enters into a swap
agreement on a net basis (i.e., the two payment streams are netted out, with
the Series receiving or paying, as the case may be, only the net amount of the
two payments), the Series will maintain cash or liquid assets with its Custo-
dian with a daily value at least equal to the excess, if any, of the Series'
accrued obligations under the swap agreement over the accrued amount the Se-
ries is entitled to receive under the agreement. If a Series enters into a
swap agreement on other than a net basis, it will maintain cash or liquid as-
sets with a value equal to the full amount of the Series' accrued obligations
under the agreement.

The most significant factor in the performance of swaps, caps, floors and col-
lars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If
the Adviser or Sub-Adviser, as applicable, is incorrect in its forecasts of
such factors, the investment performance of a Series would be less than what
it would have been if these investment techniques had not been used. If a swap
agreement calls for payments by a Series, the Series must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of the swap agreement would be likely to decline, poten-
tially resulting in losses.

If the counterparty defaults, a Series' risk of loss consists of the net
amount of payments that the Series is contractually entitled to receive. Each
Series anticipates that it will be able to eliminate or reduce its exposure
under these arrangements by assignment or other disposition or by entering
into an offsetting agreement with the same or another counterparty.

8
<PAGE>

put and call options, on securities. Call and put options written by a Series
may be covered in the manner set forth below.

A call option written by a Series is "covered" if the Series owns the security
underlying the call or has an absolute and immediate right to acquire that se-
curity without additional cash consideration (or for additional cash consider-
ation held in a segregated account by its custodian) upon conversion or ex-
change of other securities held in its portfolio. A call option is also cov-
ered if a Series holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Series in liquid assets in a segregated account with its custodian. A put
option written by a Series is "covered" if the Series maintains liquid assets
with a value equal to the exercise price in a segregated account with its cus-
todian, or else holds a put on the same security and in the same principal
amount as the put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written or where the exercise
price of the put held is less than the exercise price of the put written if
the difference is maintained by the Series in liquid assets in a segregated
account with its custodian. Put and call options written by a Series may also
be covered in such other manner as may be in accordance with the requirements
of the exchange on which, or the counterparty with which, the option is trad-
ed, and applicable laws and regulations. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the under-
lying security from the time the option is written until exercise.

Effecting a closing transaction in the case of a written call option will per-
mit a Series to write another call option on the underlying security with ei-
ther a different exercise price or expiration date or both, or in the case of
a written put option will permit the Series to write another put option to the
extent that the exercise price thereof is secured by liquid assets. Such
transactions permit a Series to generate additional premium income, which will
partially offset declines in the value of portfolio securities or increases in
the cost of securities to be acquired. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments of a Series, provided
that another option on such security is not written. If a Series desires to
sell a particular security from its portfolio on which it has written a call
option, it will effect a closing transaction in connection with the option
prior to or concurrent with the sale of the security.

A Series will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option written by the Series is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by a Series is more than
the premium paid for the original purchase. Conversely, a Series will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in establish-
ing the option position. Because increases in the market price of a call op-
tion will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option previously
written by a Series is likely to be offset in whole or in part by appreciation
of the underlying security owned by the Series.

The Series may write options in connection with buy-and-write transactions;
that is, a Series may purchase a security and then write a call option against
that security. The exercise price of the call a Series determines to write
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to ("at-
the-money") or above ("out-of-the-money") the current value of the underlying
security at the time the option is written. Buy-and-write transactions using
in-the-money call options may be used when it is expected that the price of
the underlying security will decline moderately during the option period. Buy-
and-write transactions using out-of-the-money call options may be used when it
is expected that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying se-
curity alone. If the call options are exercised in such transactions, a Se-
ries' maximum gain will be the premium received by it for writing the option,
adjusted upwards or downwards by the difference between the Series' purchase
price of the security and the exercise price, less related transaction costs.
If the options are not exercised and the price of the underlying security de-
clines, the amount of such decline will be offset in part, or entirely, by the
premium received.

The writing of covered put options is similar in terms of risk/return charac-
teristics to buy-and-write transactions. If the market price of the underlying
security rises or otherwise is above the exercise price, the put option will
expire worthless and a Series' gain will be limited to the premium received,
less related transaction costs. If the market price of the underlying security
declines or otherwise is below the exercise price, a Series may elect to close
the position or retain the option until it is exercised, at which time the Se-
ries will be required to take delivery of the security at the exercise price;
a Series' return will be the premium received from the put option minus the
amount by which the market price of the security is below the exercise price,
which could result in a loss. Out-of-the-money, at-the-money and in-the-money
put options may be used by a Series in the same market environments that call
options are used in equivalent buy-and-write transactions.

A Series may also write combinations of put and call options on the same secu-
rity, known as "straddles," with the same exercise price and expiration date.
By writing a straddle, a Series undertakes a simultaneous obligation to sell
and purchase the same security in the event that one of the options is exer-
cised. If the price of the security subsequently rises sufficiently above the
exercise price to cover the amount of the premium and transaction costs, the
call will likely be exercised and the

9
<PAGE>

Series will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or part, by the premiums re-
ceived on the writing of the two options. Conversely, if the price of the se-
curity declines by a sufficient amount, the put will likely be exercised. The
writing of straddles will likely be effective, therefore, only where the price
of the security remains stable and neither the call nor the put is exercised.
In those instances where one of the options is exercised, the loss on the pur-
chase or sale of the underlying security may exceed the amount of the premiums
received.

By writing a call option, a Series limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, a Series assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. The writing of options on securi-
ties will not be undertaken by a Series solely for hedging purposes, and could
involve certain risks which are not present in the case of hedging transac-
tions. Moreover, even where options are written for hedging purposes, such
transactions constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of securities to be ac-
quired, up to the amount of the premium.

A Series may purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of port-
folio securities. If such decline occurs, the put options will permit a Series
to sell the securities at the exercise price, or to close out the options at a
profit. By using put options in this way, a Series will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.

A Series may purchase call options to hedge against an increase in the price
of securities that the Series anticipates purchasing in the future. If such
increase occurs, the call option will permit the Series to purchase the secu-
rities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Series upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Series.

In certain instances, the Emerging Growth Series may enter into options on
U.S. Treasury securities which provide for periodic adjustment of the strike
price and may also provide for the periodic adjustment of the premium during
the term of each such option. Like other types of options, these transactions,
which may be referred to as "reset" options or "adjustable strike" options,
grant the purchaser the right to purchase (in the case of a "call") or sell
(in the case of a "put"), a specified type and series of U.S. Treasury secu-
rity at any time up to a stated expiration date (or, in certain instances, on
such date). In contrast to other types of options, however, the price at which
the underlying security may be purchased or sold under a "reset" option is de-
termined at various intervals during the term of the option, and such price
fluctuates from interval to interval based on changes in the market value of
the underlying security. As a result, the strike price of a "reset" option, at
the time of exercise, may be less advantageous to the Series than if the
strike price had been fixed at the initiation of the option. In addition, the
premium paid for the purchase of the option may be determined at the termina-
tion, rather than the initiation, of the option. If the premium is paid at
termination, the Series assumes the risk that (i) the premium may be less than
the premium which would otherwise have been received at the initiation of the
option because of such factors as the volatility in yield of the underlying
Treasury security over the term of the option and adjustments made to the
strike price of the option, and (ii) the option purchaser may default on its
obligation to pay the premium at the termination of the option.

A Series may cover call options on stock indices by owning securities whose
price changes, in the opinion of the Adviser, are expected to be similar to
those of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for addi-
tional cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities in its portfolio. Where a Series
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index and, in that event, the
Series will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. A Series may also cover
call options on stock indices by holding a call on the same index and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the difference
is maintained by the Series in liquid assets in a segregated account with its
custodian. A Series may cover put options on stock indices by maintaining liq-
uid assets with a value equal to the exercise price in a segregated account
with its custodian, or by holding a put on the same stock index and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written or
where the exercise price of the put

10
<PAGE>

held is less than the exercise price of the put written if the difference is
maintained by the Series in liquid assets in a segregated account with its
custodian. Put and call options on stock indices may also be covered in such
other manner as may be in accordance with the rules of the exchange on which,
or the counterparty with which, the option is traded and applicable laws and
regulations.

A Series will receive a premium from writing a put or call option, which in-
creases the Series' gross income in the event the option expires unexercised
or is closed out at a profit. If the value of an index on which a Series has
written a call option falls or remains the same, the Series will realize a
profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the securities it owns.
If the value of the index rises, however, a Series will realize a loss in its
call option position, which will reduce the benefit of any unrealized appreci-
ation in the Series' stock investments. By writing a put option, a Series as-
sumes the risk of a decline in the index. To the extent that the price changes
of securities owned by a Series correlate with changes in the value of the in-
dex, writing covered put options on indices will increase a Series' losses in
the event of a market decline, although such losses will be offset in part by
the premium received for writing the option.

A Series may also purchase put options on stock indices to hedge its invest-
ments against a decline in value. By purchasing a put option on a stock index,
a Series will seek to offset a decline in the value of securities it owns
through appreciation of the put option. If the value of a Series' investments
does not decline as anticipated, or if the value of the option does not in-
crease, the Series' loss will be limited to the premium paid for the option
plus related transaction costs. The success of this strategy will largely de-
pend on the accuracy of the correlation between the changes in value of the
index and the changes in value of the Series' security holdings.

The purchase of call options on stock indices may be used by a Series to at-
tempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment, at a time when the Series holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call op-
tions for this purpose, a Series will also bear the risk of losing all or a
portion of the premium paid if the value of the index does not rise. The pur-
chase of call options on stock indices when a Series is substantially fully
invested is a form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased volatility sim-
ilar to those involved in purchasing calls on securities the Fund owns.

The index underlying a stock index option may be a "broad-based" index, such
as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based on narrower
market indices, such as the Standard & Poor's 100 Index, or on indices of se-
curities of particular industry groups, such as those of oil and gas or tech-
nology companies. A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks so included. The composition of the index is changed periodically.

YIELD CURVE OPTIONS: Each of the Value Series, the Total Return Series, the
Bond Series, the World Governments Series and the High Income Series may also
enter into options on the "spread," or yield differential, between two fixed
income securities, in transactions referred to as "yield curve" options. In
contrast to other types of options, a yield curve option is based on the dif-
ference between the yields of designated securities, rather than the prices of
the individual securities, and is settled through cash payments. Accordingly,
a yield curve option is profitable to the holder if this differential widens
(in the case of a call) or narrows (in the case of a put), regardless of
whether the yields of the underlying securities increase or decrease.

Yield curve options may be used for the same purposes as other options on se-
curities. Specifically, a Series may purchase or write such options for hedg-
ing purposes. For example, a Series may purchase a call option on the yield
spread between two securities, if it owns one of the securities and antici-
pates purchasing the other security and wants to hedge against an adverse
change in the yield spread between the two securities. A Series may also pur-
chase or write yield curve options for other than hedging purposes (i.e., in
an effort to increase its current income) if, in the judgment of the Adviser,
the Series will be able to profit from movements in the spread between the
yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of op-
tions. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread
moves in a direction or to an extent which was not anticipated. Yield curve
options written by a Series will be "covered." A call (or put) option is cov-
ered if the Series holds another call (or put) option on the spread between
the same two securities and maintains in a segregated account with its custo-
dian cash or cash equivalents sufficient to cover the Series' net liability
under the two options. Therefore, a Series' liability for such a covered op-
tion is generally limited to the difference between the amount of the Series'
liability under the option written by the Series less the value of the option
held by the Series. Yield curve options may also be covered in such other man-
ner as may be in accordance with the requirements of the counterparty with
which the option is traded and applicable laws and regulations. Yield curve
options are traded over-the-counter and because they have been only recently
introduced, established trading markets for these securities have not yet de-
veloped. Because these securities are over-the-counter, the SEC has taken the
position that yield curve options are illiquid and, therefore, together with
other illiquid securities, cannot exceed a certain percentage of a Series' as-
sets (the "SEC illiquidity ceiling").

The staff of the SEC has taken the position that purchased over-the-counter
options and assets used to cover written over-the-

11
<PAGE>

counter options are illiquid and, therefore, cannot exceed the SEC illiquidity
ceiling. Although the Adviser disagrees with this position, the Adviser in-
tends to limit each Series' writing of over-the-counter options in accordance
with the following procedure. Except as provided below, a Series intends to
write over-the-counter options only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York. Also, the con-
tracts which a Series has in place with such primary dealers will provide that
the Series has the absolute right to repurchase an option it writes at any
time at a price which represents the fair market value, as determined in good
faith through negotiation between the parties, but which in no event will ex-
ceed a price determined pursuant to a formula in the contract. Although the
specific formula may vary between contracts with different primary dealers,
the formula will generally be based on a multiple of the premium received by a
Series for writing the option, plus the amount, if any, of the option's in-
trinsic value (i.e., the amount that the option is in-the-money). The formula
may also include a factor to account for the difference between the price of
the security and the strike price of the option if the option is written out-
of-money. A Series will treat all or a part of the formula price as illiquid
for purposes of the SEC illiquidity ceiling. A Series may also write over-the-
counter options with non-primary dealers, including foreign dealers, and will
treat the assets used to cover these options as illiquid for purposes of such
SEC illiquidity ceiling.

FUTURES CONTRACTS: Each of the Total Return Series, the Bond Series, the
Emerging Markets Equity Series, the World Governments Series, the Limited Ma-
turity Series, the High Income Series and the Utilities Series may purchase
and sell futures contracts ("Futures Contracts") on foreign or domestic fixed
income securities or indices of such securities. Each of the Emerging Growth
Series, the Value Series, the Total Return Series, the Growth With Income Se-
ries and the Emerging Markets Equity Series may purchase and sell Futures Con-
tracts on stock indexes, while the Emerging Growth Series, the Value Series,
the Total Return Series, the World Governments Series, the Growth With Income
Series, the Emerging Markets Equity Series and the Utilities Series may pur-
chase and sell Futures Contracts on foreign currencies or indices of foreign
currencies. Such investment strategies will be used for hedging purposes and
for non-hedging purposes, subject to applicable law.

A Futures Contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign cur-
rency, or for the making and acceptance of a cash settlement, at a stated time
in the future for a fixed price. By its terms, a Futures Contract provides for
a specified settlement date on which, in the case of the majority of interest
rate and foreign currency futures contracts, the fixed income securities or
currency are delivered by the seller and paid for by the purchaser, or on
which, in the case of stock index futures contracts and certain interest rate
and foreign currency futures contracts, the difference between the price at
which the contract was entered into and the contract's closing value is set-
tled between the purchaser and seller in cash. Futures Contracts differ from
options in that they are bilateral agreements, with both the purchaser and the
seller equally obligated to complete the transaction. Futures Contracts call
for settlement only on the expiration date and cannot be "exercised" at any
other time during their term.

The purchase or sale of a Futures Contract differs from the purchase or sale
of a security or the purchase of an option in that no purchase price is paid
or received. Instead, an amount of cash or cash equivalents, which varies but
may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the bro-
ker, referred to as "variation margin," are made on a daily basis as the value
of the index or instrument underlying the Futures Contract fluctuates, making
positions in the Futures Contract more or less valuable -- a process known as
"mark-to-market."

Purchases or sales of stock index futures contracts are used to attempt to
protect a Series' current or intended stock investments from broad fluctua-
tions in stock prices. For example, a Series may sell stock index futures con-
tracts in anticipation of or during a market decline to attempt to offset the
decrease in market value of the Series' securities portfolio that might other-
wise result. If such decline occurs, the loss in value of portfolio securities
may be offset, in whole or part, by gains on the futures position. When a Se-
ries is not fully invested in the securities market and anticipates a signifi-
cant market advance, it may purchase stock index futures contracts in order to
gain rapid market exposure that may, in part or entirely, offset increases in
the cost of securities that the Series intends to purchase. As such purchases
are made, the corresponding positions in stock index futures contracts will be
closed out. In a substantial majority of these transactions, the Series will
purchase such securities upon termination of the futures position, but under
unusual market conditions, a long futures position may be terminated without a
related purchase of securities.

Interest rate Futures Contracts may be purchased or sold to attempt to protect
against the effects of interest rate changes on a Series' current or intended
investments in fixed income securities. For example, if a Series owned long-
term bonds and interest rates were expected to increase, that Series might en-
ter into interest rate futures contracts for the sale of debt securities. Such
a sale would have much the same effect as selling some of the long-term bonds
in that Series' portfolio. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of that Series'
interest rate futures contracts would increase at approximately the same rate,
thereby keeping the net asset value of that Series from declining as much as
it otherwise would have.

Similarly, if interest rates were expected to decline, interest rate futures
contracts may be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Since the fluctuations in the value of the
interest rate futures contracts should be similar to that of long-term bonds,
a Series could protect itself against the effects of the anticipated rise in
the value of long-term bonds without actually buying them until

12
<PAGE>

the necessary cash became available or the market had stabilized. At that
time, the interest rate futures contracts could be liquidated and that Series'
cash reserves could then be used to buy long-term bonds on the cash market. A
Series could accomplish similar results by selling bonds with long maturities
and investing in bonds with short maturities when interest rates are expected
to increase. However, since the futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique al-
lows a Series to hedge its interest rate risk without having to sell its port-
folio securities.

As noted in the Prospectus, a Series may purchase and sell foreign currency
futures contracts for hedging purposes, to attempt to protect its current or
intended investments from fluctuations in currency exchange rates. Such fluc-
tuations could reduce the dollar value of portfolio securities denominated in
foreign currencies, or increase the cost of foreign-denominated securities to
be acquired, even if the value of such securities in the currencies in which
they are denominated remains constant. A Series may sell futures contracts on
a foreign currency, for example, where it holds securities denominated in such
currency and it anticipates a decline in the value of such currency relative
to the dollar. In the event such decline occurs, the resulting adverse effect
on the value of foreign-denominated securities may be offset, in whole or in
part, by gains on the futures contracts.

Conversely, a Series could protect against a rise in the dollar cost of for-
eign-denominated securities to be acquired by purchasing futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the un-
derlying currencies. Where a Series purchases futures contracts under such
circumstances, however, and the prices of securities to be acquired instead
decline, the Series will sustain losses on its futures position which could
reduce or eliminate the benefits of the reduced cost of portfolio securities
to be acquired.

OPTIONS ON FUTURES CONTRACTS: Each Series that may buy or sell Futures Con-
tracts (see "Futures Contracts" above) also may purchase and write options to
buy or sell those Futures Contracts in which it may invest ("Options on
Futures Contracts"). Such investment strategies will be used for hedging pur-
poses and for non-hedging purposes, subject to applicable law.

An Option on a Futures Contract provides the holder with the right to enter
into a "long" position in the underlying Futures Contract, in the case of a
call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price up to a stated expiration date
or, in the case of certain options, on such date. Upon exercise of the option
by the holder, the contract market clearinghouse establishes a corresponding
short position for the writer of the option, in the case of a call option, or
a corresponding long position in the case of a put option. In the event that
an option is exercised, the parties will be subject to all the risks associ-
ated with the trading of Futures Contracts, such as payment of initial and
variation margin deposits. In addition, the writer of an Option on a Futures
Contract, unlike the holder, is subject to initial and variation margin re-
quirements on the option position.

A position in an Option on a Futures Contract may be terminated by the pur-
chaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which
is the purchase or sale of an option of the same series (i.e., the same exer-
cise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.

Options on Futures Contracts that are written or purchased by a Series on U.S.
exchanges are traded on the same contract market as the underlying Futures
Contract, and, like Futures Contracts, are subject to regulation by the Com-
modities Futures Trading Commission (the "CFTC") and the performance guarantee
of the exchange clearinghouse. In addition, Options on Futures Contracts may
be traded on foreign exchanges.

A Series may cover the writing of call Options on Futures Contracts (a)
through purchases of the underlying Futures Contract, (b) through ownership of
the instrument, or instruments included in the index, underlying the Futures
Contract, or (c) through the holding of a call on the same Futures Contract
and in the same principal amount as the call written where the exercise price
of the call held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call written if the
difference is maintained by the Series in liquid assets in a segregated ac-
count with its custodian. A Series may cover the writing of put Options on
Futures Contracts (a) through sales of the underlying Futures Contract, (b)
through segregation of liquid assets in an amount equal to the value of the
security or index underlying the Futures Contract, or (c) through the holding
of a put on the same Futures Contract and in the same principal amount as the
put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written or where the exercise price of the
put held is less than the exercise price of the put written if the difference
is maintained by the Series in liquid assets in a segregated account with its
custodian. Put and call Options on Futures Contracts may also be covered in
such other manner as may be in accordance with the rules of the exchange on
which the option is traded and applicable laws and regulations. Upon the exer-
cise of a call Option on a Futures Contract written by a Series, the Series
will be required to sell the underlying Futures Contract which, if the Series
has covered its obligation through the purchase of such Contract, will serve
to liquidate its futures position. Similarly, where a put Option on a Futures
Contract written by a Series is exercised, the Series will be required to pur-
chase the underlying Futures Contract which, if the Series has covered its ob-
ligation through the sale of such Contract, will close out its futures posi-
tion.

The writing of a call option on a Futures Contract for hedging purposes con-
stitutes a partial hedge against declining prices of the securities or other
instruments required to be delivered un-

13
<PAGE>

der the terms of the Futures Contract. If the futures price at expiration of
the option is below the exercise price, a Series will retain the full amount
of the option premium, less related transaction costs, which provides a par-
tial hedge against any decline that may have occurred in the Series' portfolio
holdings. The writing of a put option on a Futures Contract constitutes a par-
tial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract. If the
futures price at expiration of the option is higher than the exercise price, a
Series will retain the full amount of the option premium which provides a par-
tial hedge against any increase in the price of securities which the Series
intends to purchase. If a put or call option a Series has written is exer-
cised, the Series will incur a loss which will be reduced by the amount of the
premium it receives. Depending on the degree of correlation between changes in
the value of its portfolio securities and the changes in the value of its
futures positions, a Series' losses from existing Options on Futures Contracts
may to some extent be reduced or increased by changes in the value of portfo-
lio securities.

The Series may purchase Options on Futures Contracts for hedging purposes in-
stead of purchasing or selling the underlying Futures Contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a re-
sult of a projected market-wide decline or changes in interest or exchange
rates, a Series could, in lieu of selling Futures Contracts, purchase put op-
tions thereon. In the event that such decrease occurs, it may be offset, in
whole or in part, by a profit on the option. Conversely, where it is projected
that the value of securities to be acquired by a Series will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
a Series could purchase call Options on Futures Contracts, rather than pur-
chasing the underlying Futures Contracts.

FORWARD CONTRACTS ON FOREIGN CURRENCY: Each of the Emerging Growth Series, the
Value Series, the Research Series, the Total Return Series, the Bond Series,
the Emerging Markets Equity Series, the World Governments Series, the Growth
With Income Series, the High Income Series and the Utilities Series may enter
into forward foreign currency exchange contracts for hedging and, in certain
Series, non-hedging purposes (collectively, "Forward Contracts"). Forward Con-
tracts may be used for hedging to attempt to minimize the risk to the Series
from adverse changes in the relationship between the U.S. dollar and foreign
currencies. The Series intend to enter into Forward Contracts for hedging pur-
poses similar to those described above in connection with foreign currency
futures contracts. In particular, a Forward Contract to sell a currency may be
entered into in lieu of the sale of a foreign currency futures contract where
a Series seeks to protect against an anticipated increase in the exchange rate
for a specific currency which could reduce the dollar value of portfolio secu-
rities denominated in such currency. Conversely, a Series may enter into a
Forward Contract to purchase a given currency to protect against a projected
increase in the dollar value of securities denominated in such currency which
the Series intends to acquire. A Series also may enter into a Forward Contract
in order to assure itself of a predetermined exchange rate in connection with
a fixed income security denominated in a foreign currency. In addition, the
Series may enter into Forward Contracts for "cross hedging" purposes (e.g.,
the purchase or sale of a Forward Contract on one type of currency, as a hedge
against adverse fluctuations in the value of a second type of currency).

If a hedging transaction in Forward Contracts is successful, the decline in
the value of portfolio securities or other assets or the increase in the cost
of securities or other assets to be acquired may be offset, at least in part,
by profits on the Forward Contract. Nevertheless, by entering into such For-
ward Contracts, a Series may be required to forego all or a portion of the
benefits which otherwise could have been obtained from favorable movements in
exchange rates or natural resources prices. The Series do not intend, in most
instances, to hold Forward Contracts entered into until maturity, at which
time they would be required to deliver or accept delivery of the underlying
currency, but will usually seek to close out positions in such contracts by
entering into offsetting transactions, which will serve to fix a Series'
profit or loss based upon the value of the contracts at the time the offset-
ting transaction is executed.

The Series may also enter into transactions in Forward Contracts for other
than hedging purposes, which presents greater profit potential but also in-
volves increased risk. For example, a Series may purchase a given foreign cur-
rency through a Forward Contract if, in the judgment of the Adviser, the value
of such currency is expected to rise relative to the U.S. dollar. Conversely,
the Series may sell the currency through a Forward Contract if the Adviser be-
lieves that its value will decline relative to the dollar.

A Series entering into such transactions will profit if the anticipated move-
ments in foreign currency exchange rates occurs, which will increase its gross
income. Where exchange rates do not move in the direction or to the extent an-
ticipated, however, the Series may sustain losses, which will reduce its gross
income. Such transactions, therefore, could be considered speculative and
could involve significant risk of loss.

Each Series has established procedures consistent with statements by the SEC
and its staff regarding the use of Forward Contracts by registered investment
companies, which require the use of segregated assets or "cover " in connec-
tion with the purchase and sale of such contracts. In those instances in which
the Series satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, liquid assets, which will be marked to mar-
ket on a daily basis, in an amount equal to the value of its commitments under
Forward Contracts. While these contracts are not presently regulated by the
CFTC, the CFTC may in the future assert authority to regulate Forward Con-
tracts. In such event, the Series' ability to utilize Forward Contracts in the
manner set forth above may be restricted.

14
<PAGE>

OPTIONS ON FOREIGN CURRENCIES: Each of the Emerging Growth Series, the Value
Series, the Total Return Series, the Bond Series, the Emerging Markets Equity
Series, the World Governments Series, the Growth With Income Series, the High
Income Series and the Utilities Series may purchase and write options on for-
eign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or Forward Contracts, will be uti-
lized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of
such securities, even if their value in the foreign currency remains constant.
In order to protect against such diminutions in the value of portfolio securi-
ties, a Series may purchase put options on the foreign currency. If the value
of the currency does decline, the Series will have the right to sell such cur-
rency for a fixed amount in dollars and will thereby offset, in whole in part,
the adverse effect on its portfolio which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of
such securities, the Series may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, howev-
er, the benefit to a Series deriving from purchases of foreign currency op-
tions will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, a Series could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

A Series may write options on foreign currencies for the same types of hedging
purposes. For example, where the Series anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in ex-
change rates it could, instead of purchasing a put option, write a call option
on the relevant currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Series could write
a put option on the relevant currency which, if rates move in the manner pro-
jected, will expire unexercised and allow the Series to hedge such increased
cost up to the amount of the premium. Foreign currency options written by a
Series will generally be covered in a manner similar to the covering of other
types of options. As in the case of other types of options, however, the writ-
ing of a foreign currency option will constitute only a partial hedge up to
the amount of the premium, and only if rates move in the expected direction.
If this does not occur, the option may be exercised and a Series would be re-
quired to purchase or sell the underlying currency at a loss which may not be
offset by the amount of the premium. Through the writing of options on foreign
currencies, a Series also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.

ADDITIONAL RISK FACTORS:

OPTIONS, FUTURES AND FORWARD TRANSACTIONS

RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH A SERIES' PORTFOLIO.
The Series' ability effectively to hedge all or a portion of their portfolios
through transactions in options, Futures Contracts, Options on Futures Con-
tracts, Forward Contracts and options on foreign currencies depend on the de-
gree to which price movements in the underlying index or instrument correlate
with price movements in the relevant portion of the Series' portfolios. In the
case of futures and options based on an index, the portfolio will not dupli-
cate the components of the index, and in the case of futures and options on
fixed income securities, the portfolio securities which are being hedged may
not be the same type of obligation underlying such contract. The use of For-
ward Contracts for "cross hedging" purposes may involve greater correlation
risks. As a result, the correlation probably will not be exact. Consequently,
the Series bear the risk that the price of the portfolio securities being
hedged will not move in the same amount or direction as the underlying index
or obligation.

For example, if a Series purchases a put option on an index and the index de-
creases less than the value of the hedged securities, the Series would experi-
ence a loss which is not completely offset by the put option. It is also pos-
sible that there may be a negative correlation between the index or obligation
underlying an option or Futures Contract in which the Series has a position
and the portfolio securities the Series is attempting to hedge, which could
result in a loss on both the portfolio and the hedging instrument. In addi-
tion, a Series may enter into transactions in Forward Contracts or options on
foreign currencies in order to hedge against exposure arising from the curren-
cies underlying such instruments. In such instances, the Series will be sub-
ject to the additional risk of imperfect correlation between changes in the
value of the currencies underlying such forwards or options and changes in the
value of the currencies being hedged.

It should be noted that stock index futures contracts or options based upon a
narrower index of securities, such as those of a particular industry group,
may present greater risk than options or futures based on a broad market in-
dex. This is due to the fact that a narrower index is more susceptible to
rapid and extreme fluctuations as a result of changes in the value of a small
number of securities. Nevertheless, where a Series enters into transactions in
options, or futures on narrowly-based indexes for hedging purposes, movements
in the value of the index should, if the hedge is successful, correlate
closely with the portion of the Series' portfolio or the intended acquisitions
being hedged.

15
<PAGE>

The trading of Futures Contracts, options and Forward Contracts for hedging
purposes entails the additional risk of imperfect correlation between move-
ments in the futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be distorted due to
the differences in the nature of the markets such as differences in margin re-
quirements, the liquidity of such markets and the participation of speculators
in the options, futures and forward markets. In this regard, trading by specu-
lators in options, futures and Forward Contracts has in the past occasionally
resulted in market distortions, which may be difficult or impossible to pre-
dict, particularly near the expiration of such contracts.

The trading of Options on Futures Contracts also entails the risk that changes
in the value of the underlying Futures Contracts will not be fully reflected
in the value of the option. The risk of imperfect correlation, however, gener-
ally tends to diminish as the maturity date of the Futures Contract or expira-
tion date of the option approaches.

Further, with respect to options on securities, options on stock indexes, op-
tions on currencies and Options on Futures Contracts, the Series are subject
to the risk of market movements between the time that the option is exercised
and the time of performance thereunder. This could increase the extent of any
loss suffered by a Series in connection with such transactions.

In writing a covered call option on a security, index or futures contract, a
Series also incurs the risk that changes in the value of the instruments used
to cover the position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, where a Series cov-
ers a call option written on a stock index through segregation of securities,
such securities may not match the composition of the index, and the Series may
not be fully covered. As a result, the Series could be subject to risk of loss
in the event of adverse market movements.

The writing of options on securities, options on stock indexes or Options on
Futures Contracts constitutes only a partial hedge against fluctuations in the
value of a Series' portfolio. When a Series writes an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such ob-
ligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put,
the option will not be exercised and the Series will retain the amount of the
premium, less related transaction costs, which will constitute a partial hedge
against any decline that may have occurred in the Series' portfolio holdings
or any increase in the cost of the instruments to be acquired.

Where the price of the underlying obligation moves sufficiently in favor of
the holder to warrant exercise of the option, however, and the option is exer-
cised, the Series will incur a loss which may only be partially offset by the
amount of the premium it received. Moreover, by writing an option, a Series
may be required to forego the benefits which might otherwise have been ob-
tained from an increase in the value of portfolio securities or other assets
or a decline in the value of securities or assets to be acquired.

In the event of the occurrence of any of the foregoing adverse market events,
a Series' overall return may be lower than if it had not engaged in the hedg-
ing transactions.

Those Series that may enter transactions in options (except for Options on
Foreign Currencies), Futures Contracts, Options on Futures Contracts and For-
ward Contracts for hedging purposes may also enter into such transactions for
non-hedging purposes. Non-hedging transactions in such investments involve
greater risks and may result in losses which may not be offset by increases in
the value of portfolio securities or declines in the cost of securities to be
acquired. The Series will only write covered options, such that cash or secu-
rities necessary to satisfy an option exercise will be segregated at all
times, unless the option is covered in such other manner as may be in accor-
dance with the rules of the exchange on which the option is traded and appli-
cable laws and regulations. Nevertheless, the method of covering an option em-
ployed by a Series may not fully protect it against risk of loss and, in any
event, the Series could suffer losses on the option position which might not
be offset by corresponding portfolio gains. Entering into transactions in
Futures Contracts, Options on Futures Contracts and Forward Contracts for
other than hedging purposes could expose the Series to significant risk of
loss if foreign currency exchange rates do not move in the direction or to the
extent anticipated.

With respect to the writing of straddles on securities, a Series incurs the
risk that the price of the underlying security will not remain stable, that
one of the options written will be exercised and that the resulting loss will
not be offset by the amount of the premiums received. Such transactions,
therefore, create an opportunity for increased return by providing a Series
with two simultaneous premiums on the same security, but involve additional
risk, since the Series may have an option exercised against it regardless of
whether the price of the security increases or decreases.

RISK OF A POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to exercise or
expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was en-
tered into. While the Series will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no as-
surance that such a market will exist for any particular contracts at any spe-
cific time. In that event, it may not be possible to close out a position held
by a Series, and the Series could be required to purchase or sell the instru-
ment underlying an option, make or receive a cash settlement or meet ongoing
variation margin requirements. Under such circumstances, if the Series has in-
sufficient cash available to meet margin requirements, it will be necessary to
liquidate portfolio securities or other assets at a time when it is disadvan-
tageous

16
<PAGE>

to do so. The inability to close out options and futures positions, therefore,
could have an adverse impact on the Series' ability effectively to hedge their
portfolios, and could result in trading losses.

The liquidity of a secondary market in a Futures Contract or option thereon
may be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the con-
tract, no trades may be entered into at a price beyond the limit, thus pre-
venting the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved the
daily limit on a number of consecutive trading days.

The trading of Futures Contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures, gov-
ernment intervention, insolvency of a brokerage firm or clearinghouse or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.

MARGIN. Because of low initial margin deposits made upon the opening of a
futures or forward position and the writing of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where a Series enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is success-
ful, be offset, in whole or in part, by increases in the value of securities
or other assets held by the Series or decreases in the prices of securities or
other assets the Series intends to acquire. Where a Series enters into such
transactions for other than hedging purposes, the margin requirements associ-
ated with such transactions could expose the Series to greater risk.

TRADING AND POSITION LIMITS. The exchange on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different ex-
changes or held or written in one or more accounts or through one or more bro-
kers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular
futures or option contract. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Adviser does not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the portfo-
lios of the Series.

RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of risk a Series assumes
when it purchases an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option pur-
chased, however, it may be necessary to exercise the option and to liquidate
the underlying Futures Contract, subject to the risks of the availability of a
liquid offset market described herein. The writer of an Option on a Futures
Contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the addi-
tional risk that movements in the price of the option may not correlate with
movements in the price of the underlying security, index, currency or Futures
Contract.

RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND TRANSACTIONS NOT CON-
DUCTED ON U.S. EXCHANGES. Transactions in Forward Contracts on foreign curren-
cies, as well as futures and options on foreign currencies and transactions
executed on foreign exchanges, are subject to all of the correlation, liquid-
ity and other risks outlined above. In addition, however, such transactions
are subject to the risk of governmental actions affecting trading in or the
prices of currencies underlying such contracts, which could restrict or elimi-
nate trading and could have a substantial adverse effect on the value of posi-
tions held by a Series. Further, the value of such positions could be ad-
versely affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.

Further, unlike trading in most other types of instruments, there is no sys-
tematic reporting of last sale information with respect to the foreign curren-
cies underlying contracts thereon. As a result, the available information on
which trading systems will be based may not be as complete as the comparable
data on which a Series makes investment and trading decisions in connection
with other transactions. Moreover, because the foreign currency market is a
global, 24-hour market, events could occur in that market which will not be
reflected in the forward, futures or options market until the following day,
thereby making it more difficult for the Series to respond to such events in a
timely manner.

Settlements of exercises of over-the-counter Forward Contracts or foreign cur-
rency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or
other charges.

Unlike transactions entered into by the Series in Futures Contracts and ex-
change-traded options, options on foreign currencies, Forward Contracts and
over-the-counter options on securities are not traded on contract markets reg-
ulated by the CFTC or (with the exception of certain foreign currency options)
the SEC. To the contrary, such instruments are traded through financial insti-
tutions acting as market-makers, although foreign currency options are also
traded on certain national securities

17
<PAGE>

exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Op-
tions Exchange, subject to SEC regulation. In an over-the-counter trading en-
vironment, many of the protections afforded to exchange participants will not
be available. For example, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over
a period of time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this entire amount
could be lost. Moreover, the option writer and a trader of Forward Contracts
could lose amounts substantially in excess of their initial investments, due
to the margin and collateral requirements associated with such positions.

In addition, over-the-counter transactions can only be entered into with a fi-
nancial institution willing to take the opposite side, as principal, of a Se-
ries' position unless the institution acts as broker and is able to find an-
other counterparty willing to enter into the transaction with the Series.
Where no such counterparty is available, it will not be possible to enter into
a desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and a Series could be required to re-
tain options purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the Series' ability
to profit from open positions or to reduce losses experienced, and could re-
sult in greater losses.

Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and a Series will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby re-
stricting the Series' ability to enter into desired hedging transactions. A
Series will enter into an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.

Options on securities, options on stock indexes, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the
same manner as those entered into on U.S. exchanges, and may be subject to
different margin, exercise, settlement or expiration procedures. As a result,
many of the risks of over-the-counter trading may be present in connection
with such transactions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such ex-
changes. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
"OCC"), thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities exchange may be
more readily available than in the over-the-counter market, potentially per-
mitting a Series to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market de-
scribed above, as well as the risks regarding adverse market movements, mar-
gining of options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on foreign curren-
cies involve certain risks not presented by the over-the-counter market. For
example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly set-
tlement of foreign currency option exercises, or would result in undue burdens
on the OCC or its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of delivery of curren-
cy, the fixing of dollar settlement prices or prohibitions on exercise.

POLICIES ON THE USE OF FUTURES AND OPTIONS ON FUTURES CONTRACTS. In order to
assure that the Series will not be deemed to be a "commodity pool" for pur-
poses of the Commodity Exchange Act, regulations of the CFTC require that a
Series enter into transactions in Futures Contracts and Options on Futures
Contracts only (i) for bona fide hedging purposes (as defined in CFTC regula-
tions), or (ii) for non-hedging purposes, provided that the aggregate initial
margin and premiums on such non-hedging positions does not exceed 5% of the
liquidation value of the Series' assets. In addition, the Series must comply
with the requirements of various state securities laws in connection with such
transactions.

Each Series has adopted the additional restriction that it will not enter into
a Futures Contract if, immediately thereafter, the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of
the value of such Series' total assets. Moreover, a Series will not purchase
put and call options if as a result more than 5% of its total assets would be
invested in such options.

When a Series purchases a Futures Contract, an amount of cash or securities
will be deposited in a segregated account with the Series custodian so that
the amount so segregated will at all times equal the value of the Futures Con-
tract, thereby insuring that the leveraging effect of such futures is mini-
mized.

RISKS OF INVESTING IN LOWER RATED BONDS

Each of the Emerging Growth Series, the Value Series, the Research Series, the
Total Return Series, the Bond Series, the Limited Maturity Series, the Emerg-
ing Markets Equity Series, the High Income Series and the Utilities Series may
invest in fixed income securities rated Baa by Moody's Investors Serv -

18
<PAGE>

ice, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P") or
Fitch Investors Service, Inc. ("Fitch") and comparable unrated securities.
These securities, while normally exhibiting adequate protection parameters,
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income securi-
ties.

Each of these Series (except the Limited Maturity Series) may also invest in
fixed income securities rated Ba or lower by Moody's or BB or lower by S&P or
Fitch and comparable unrated securities (commonly known as "junk bonds") to
the extent described in the Prospectus. No minimum rating standard is required
by the Series. These securities are considered speculative and, while gener-
ally providing greater income than investments in higher rated securities,
will involve greater risk of principal and income (including the possibility
of default or bankruptcy of the issuers of such securities) and may involve
greater volatility of price (especially during periods of economic uncertainty
or change) than securities in the higher rating categories and because yields
vary over time, no specific level of income can ever be assured. These lower
rated high yielding fixed income securities generally tend to reflect economic
changes (and the outlook for economic growth), short-term corporate and indus-
try developments and the market's perception of their credit quality (espe-
cially during times of adverse publicity) to a greater extent than higher
rated securities which react primarily to fluctuations in the general level of
interest rates (although these lower rated fixed income securities are also
affected by changes in interest rates). In the past, economic downturns or an
increase in interest rates have, under certain circumstances, caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. The prices for
these securities may be affected by legislative and regulatory developments.
The market for these lower rated fixed income securities may be less liquid
than the market for investment grade fixed income securities. Furthermore, the
liquidity of these lower rated securities may be affected by the market's per-
ception of their credit quality. Therefore, the Adviser's judgment may at
times play a greater role in valuing these securities than in the case of in-
vestment grade fixed income securities, and it also may be more difficult dur-
ing times of certain adverse market conditions to sell these lower rated secu-
rities to meet redemption requests or to respond to changes in the market.

While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the Series' policy to rely exclusively on ratings issued
by these rating agencies, but rather to supplement such ratings with the Ad-
viser's own independent and ongoing review of credit quality. To the extent
the Series invests in these lower rated securities, the achievement of its in-
vestment objectives may be more dependent on the Adviser's own credit analysis
than in the case of a fund investing in higher quality fixed income securi-
ties. These lower rated securities may also include zero coupon bonds, de-
ferred interest bonds and PIK bonds.

FOREIGN SECURITIES

The Limited Maturity Series may invest in dollar-denominated foreign debt se-
curities. The Money Market Series may invest in dollar-denominated securities
of foreign issuers and in dollar-denominated securities of foreign branches of
U.S. banks, such as negotiable certificates of deposit (Eurodollars). The re-
maining Series may invest in dollar-denominated and non dollar-denominated
foreign securities. As discussed in the Prospectus, investing in foreign secu-
rities generally represents a greater degree of risk than investing in domes-
tic securities due to possible exchange rate fluctuations, less publicly
available information, more volatile markets, less securities regulation, less
favorable tax provisions, war or expropriation. As a result of its investments
in foreign securities, a Series may receive interest or dividend payments, or
the proceeds of the sale or redemption of such securities,in the foreign cur-
rencies in which such securities are denominated. Under certain circumstances,
such as where the Adviser believes that the applicable exchange rate is unfa-
vorable at the time the currencies are received or the Adviser anticipates,
for any other reason, that the exchange rate will improve, a Series may hold
such currencies for an indefinite period of time. While the holding of curren-
cies will permit a Series to take advantage of favorable movements in the ap-
plicable exchange rate, such strategy also exposes the Series to risk of loss
if exchange rates move in a direction adverse to the Series' position. Such
losses could reduce any profits or increase any losses sustained by the Series
from the sale or redemption of securities and could reduce the dollar value of
interest or dividend payments received.

DEPOSITARY RECEIPTS

Each of the Series (except the Limited Maturity Series and the Money Market
Series) may invest in American Depositary Receipts ("ADRs"), which are certif-
icates issued by a U.S. depositary (usually a bank) and represent a specified
quantity of shares of an underlying non-U.S. stock on deposit with a custodian
bank as collateral. ADRs may be sponsored or unsponsored. A sponsored ADR is
issued by a depository which has an exclusive relationship with the issuer of
the underlying security. An unsponsored ADR may be issued by any number of
U.S. depositories. A Series may invest in either type of ADR. Under the terms
of most sponsored arrangements, depositaries agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder com-
munications and other information to the ADR holders at the request of the is-
suer of the deposited securities. The depositary of an unsponsored ADR, on the
other hand, is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Although the
U.S. investor holds a substitute receipt of ownership rather than direct stock
certificates, the use of the depositary receipts in the United States can re-
duce costs and delays as well as

19
<PAGE>

potential currency exchange and other difficulties. A Series may purchase se-
curities in local markets and direct delivery of these ordinary shares to the
local depository of an ADR agent bank in the foreign country. Simultaneously,
the ADR agents create a certificate which settles at the Series' custodian in
five days. A Series may also execute trades on the U.S. markets using existing
ADRs. A foreign issuer of the security underlying an ADR is generally not sub-
ject to the same reporting requirements in the United States as a domestic is-
suer. Accordingly the information available to a U.S. investor will be limited
to the information the foreign issuer is required to disclose in its own coun-
try an the market value of an ADR may not reflect undisclosed material infor-
mation concerning the issuer of the underlying security. ADRs may also be sub-
ject to exchange rate risks if the underlying foreign securities are denomi-
nated in foreign currency. The Series may also invest in Global Depositary Re-
ceipts ("GDRs") and other types of depositary receipts. GDRs and other types
of depositary receipts are typically issued by foreign banks or trust compa-
nies and evidence ownership of underlying securities issued by either a for-
eign or U.S. company.

--------------

A Series' limitations, policies and ratings restrictions are adhered to at the
time of purchase or utilization of assets; a subsequent change in circum-
stances will not be considered to result in a violation of policy.

3. INVESTMENT RESTRICTIONS

Each Series has adopted the following restrictions which cannot be changed
without the approval of the holders of a majority of the Series' shares
(which, as used in this SAI, means the lesser of (i) more than 50% of the out-
standing shares of the Trust or a Series, as applicable, or (ii) 67% or more
of the outstanding shares of the Trust or a Series, as applicable, present at
a meeting if holders of more than 50% of the outstanding shares of the Trust
or a Series, as applicable, are represented in person or by proxy). Except for
Investment Restriction (1), these investment restrictions and policies are ad-
hered to at the time of purchase or utilization of assets; a subsequent change
in circumstances will not be considered to result in a violation of any of the
restrictions.

The Trust, on behalf of any Series, may not:

(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed and then only as a temporary measure for extraordinary or emer-
gency purposes;

(2) underwrite securities issued by other persons except insofar as the
Series may technically be deemed an underwriter under the Securities Act of
1933, as amended (the "1933 Act") in selling a portfolio security;

(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (excluding currencies and any
type of option, Futures Contracts and Forward Contracts) in the ordinary
course of its business. The Series reserves the freedom of action to hold
and to sell real estate, mineral leases, commodities or commodity contracts
(including currencies and any type of option, Futures Contracts and Forward
Contracts) acquired as a result of the ownership of securities;

(4) issue any senior securities except as permitted by the 1940 Act. For
purposes of this restriction, collateral arrangements with respect to any
type of swap, option, Forward Contracts and Futures Contracts and collat-
eral arrangements with respect to initial and variation margin are not
deemed to be the issuance of a senior security;

(5) make loans to other persons. For these purposes, the purchase of com-
mercial paper, the purchase of a portion or all of an issue of debt securi-
ties, the lending of portfolio securities, or the investment of the Series'
assets in repurchase agreements, shall not be considered the making of a
loan; or

(6) purchase any securities of an issuer of a particular industry, if as
a result, more than 25% of its gross assets would be invested in securities
of issuers whose principal business activities are in the same industry
(except (i) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
repurchase agreements collateralized by such obligations, (ii) the High In-
come Series may invest up to 40% of its gross assets in each of the elec-
tric utility and telephone industries, (iii) the Money Market Series may
invest up to 75% of its assets in all finance companies as a group, all
banks and bank holding companies as a group and all utility companies as a
group when in the opinion of management yield differentials and money mar-
ket conditions suggest and when cash is available for such investment and
instruments are available for purchase which fulfill that Series' objective
in terms of quality and marketability, (iv) the Strategic Fixed Income Se-
ries may invest up to 40% of its assets in each of the electric utility and
telephone industries and (v) the Utilities Series will invest at least 25%
of its gross assets in the utilities industry).

In addition, each Series has adopted the following nonfundamental policies
which may be changed by the vote of the Trust's Board of Trustees without
shareholder approval. The Trust, on behalf of any Series, will not:

(1) invest in illiquid investments, including securities subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, where no market exists) if more than 15% of
the Series' assets (taken at market value) (10% of assets in

20
<PAGE>

the case of the Money Market Series) would be invested in such securities.
Repurchase agreements maturing in more than seven days will be deemed to be
illiquid for purposes of the Series' limitation on investment in illiquid
securities. Securities that are not registered under the 1933 Act and sold
in reliance on Rule 144A thereunder, but are determined to be liquid by the
Trust's Board of Trustees (or its delegee), will not be subject to this 15%
(10% in the case of the Money Market Series) limitation;

(2) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part
of a plan of merger or consolidation;

(3) purchase any securities or evidences of interest therein on margin,
except that the Series may obtain such short-term credit as may be neces-
sary for the clearance of any transaction and except that the Series may
make margin deposits in connection with any type of swap, option, Futures
Contracts and Forward Contracts;

(4) sell any security which the Series does not own unless by virtue of
its ownership of other securities the Series has at the time of sale a
right to obtain securities without payment of further consideration equiva-
lent in kind and amount to the securities sold and provided that if such
right is conditional, the sale is made upon the same conditions;

(5) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross as-
sets. For purposes of this restriction, collateral arrangements with re-
spect to any type of swap, option, Futures Contracts and Forward Contracts
and payments of initial and variation margin in connection therewith, are
not considered a pledge of assets;

(6) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent the purchase, ownership, holding or
sale of (i) warrants where the grantor of the warrants is the issuer of the
underlying securities or (ii) put or call options or combinations thereof
with respect to securities, indices of securities, swaps, foreign curren-
cies and Futures Contracts;

(7) invest for the purpose of exercising control or management;

(8) hold obligations issued or guaranteed by any one U.S. Governmental
agency or instrumentality, at the end of any calendar quarter (or within 30
days thereafter), to the extent such holdings would cause the Series to
fail to comply with the diversification requirements imposed by Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Treasury regulations issued thereunder on segregated asset accounts
that fund variable contracts.

In addition, as nonfundamental policies which may be changed by vote of the
Trust's Board of Trustees: (i) each Series, to the extent that it invests in
foreign securities, will be invested in a minimum of five different foreign
countries at all times, provided that this minimum is reduced to four when
foreign country investments comprise less than 80% of the Series' net assets,
to three when less than 60% of such value, to two when less than 40% of such
value, and to one when less than 20% of such value; (ii) no Series will have
more than 20% of its net assets invested in securities of issuers located in
any one foreign country, provided that a Series may have up to 35% of its net
assets invested in securities of issuers located in Australia, Canada, France,
Japan, the United Kingdom or West Germany; (iii) no Series may borrow amounts
in excess of 10% of its net assets when borrowing for any general purpose or
in excess of 25% of net assets when borrowing as a temporary measure to facil-
itate redemptions; and (iv) no Series may enter into hedging transactions by
purchasing put and call options, futures contracts or other derivative instru-
ments on securities, in an aggregate market value equivalent to more than 10%
of its total assets. For purposes of clauses (i) and (ii) above, ADRs and Eu-
ropean Depositary Receipts shall be deemed to be foreign securities.

4. MANAGEMENT OF THE TRUST

The Board of Trustees of the Trust provides broad supervision over the affairs
of each Series. MFS is responsible for the investment management of each Se-
ries' assets and the officers of the Trust are responsible for its operations.
The Trustees and officers of the Trust are listed below, together with their
principal occupations during the past five years. (Their titles may have var-
ied during that period.)

TRUSTEES

A. KEITH BRODKIN*, Chairman and President (born 8/4/35) Massachusetts Finan-
cial Services Company, Chairman.

NELSON J. DARLING, JR. (born 12/27/20) Professional Trustee Address: 27 School
Street, Boston, Massachusetts

WILLIAM R. GUTOW (born 9/27/41)Private Investor; Real Estate Consultant; Capi-
tol Entertainment (Blockbuster Video Franchise), Vice Chairman.Address: 3102
Maple Avenue, #100, Dallas, Texas

OFFICERS

W. THOMAS LONDON*, Treasurer (born 3/1/44) Massachusetts Financial Services
Company, Senior Vice President.

STEPHEN E. CAVAN*, Secretary and Clerk (born 11/6/53) Massachusetts Financial
Services Company, Senior Vice President, General Counsel and Assistant Secre-
tary.

21
<PAGE>

JAMES R. BORDEWICK, JR.*, Assistant Secretary (born 3/6/59) Massachusetts Fi-
nancial Services Company, Senior Vice President and Associate General Counsel.

JAMES O. YOST*, Assistant Treasurer (born 6/12/60) Massachusetts Financial
Services Company, Vice President.

MARK E. BRADLEY* (born 11/23/59) - Assistant Treasurer

Massachusetts Financial Services Company, Vice President (since March 1997);
Putnam Investments, Vice President (from September 1994 until March 1997);
Ernst & Young, Senior Tax Manager (until September 1994).

ELLEN M. MOYNIHAN* (born 11/13/57) - Assistant Treasurer

Massachusetts Financial Services Company, Vice President (since September
1996); Deloitte & Touche LLP, Senior Manager (until Sepember 1996).
- -----------------
*"Interested persons" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Adviser, whose address is 500 Boylston Street,
Boston, Massachusetts 02116.

Mr. Brodkin and each officer hold comparable positions with certain affiliates
of MFS or with certain other funds of which MFS or a subsidiary is the invest-
ment adviser or distributor. Messrs. Brodkin and Cavan are the Chairman and the
Secretary, respectively, of MFD and hold similar positions with certain other
MFS affiliates.

As of July 28, 1997, all Trustees and officers as a group owned less than 1% of
each Series.

Listed in the chart below are the name, address and percentage of ownership of
each person of record or known by the Trust to own of record or beneficially
five percent or more of any Series' outstanding securities as of July 28, 1997.

<TABLE>
<CAPTION>
% OF
OUTSTANDING
SERIES OWNER & ADDRESS SHARES
------------ ----------------------------------------- -----------
<C> <S> <C>
MFS Emerging Ameritas Life Insurance Company 10.95%
Growth Separate Account VA-2 (Annuity)
Series 5900 O Street
Lincoln, NE 68510-2234

United of Omaha Life Insurance Company 15.67%
Mutual of Omaha Plaza
Omaha, NE 68175

Union Central Life Insurance Company 7.28%
Group Annuity
Mutual Funds -- Station 3
1876 Waycross Road
Cincinnati, OH 45240-2899

Merrill Lynch Life Insurance Company 16.01%
4804 Deer Lake Drive,
East Jacksonville, FL 32246-6484

Pruco Life of Arizona 10.62%
Flexible Premium Variable Annuity Account
213 Washington Street
Floor 7
Newark, NJ 07102-2917
</TABLE>
<TABLE>
<CAPTION>
% OF
OUTSTANDING
SERIES OWNER & ADDRESS SHARES
- ------------ ----------------------------------------- -----------
<S> <C> <C>
MFS Emerging Aetna Life Insurance & Annuity Company 7.47%
Growth 151 Farmington Avenue
Series Hartford, CT 06156-0001
(Cont.)
CUNA Mutual Life Insurance Company 12.27%
Variable Annuity Account
2000 Heritage Way
Waverly, IA 50677-9202

MFS Value Aetna Investment Company of America 11.10%
Series 151 Farmington Avenue
Hartford, CT 06156-0001

Aetna Life Insurance & Annuity Company 40.48%
151 Farmington Avenue
Hartford, CT 06156-0001

MFS Fund Distributors, Inc. 26.58%
500 Boylston Street
Boston, MA 02116-3740

United of Omaha Life Insurance Company 18.94%
United of Omaha
Omaha, NE 68175-0001

MFS Research United of Omaha Life Insurance Company 15.77%
Series Mutual of Omaha Plaza
Omaha, NE 68175

Merrill Lynch Life Insurance Company 41.37%
4804 Deer Lake Drive,
East Jacksonville, FL 32246-6484

Pruco Life of Arizona 9.94%
Flexible Premium Variable Annuity Account
213 Washington Street
Floor 7
Newark, NJ 07102-2917

Aetna Life Insurance & Annuity Company 12.08%
151 Farmington Avenue
Hartford, CT 06156-0001

MFS Growth Ameritus Life Insurance Company 26.97%
With Income Separate Account VA-2 (Annuity)
Series 5900 O Street
Lincoln, NE 68510-2234

Union Central Life Insurance Company 28.96%
Group Annuity
Mutual Funds -- Station 3
1876 Waycross Road
Cincinnati, OH 45240-2899

Union Central Life Insurance Company 36.31%
Individual Annuity
Mutual Funds -- Station 3
1876 Waycross Road
Cincinnati, OH 45240-2899

MFS Total Cigna Variable Annuity 6.40%
Return Separate Account I
Series 900 Cottage Grove Road
S-203
Hartford, CT 06152-0001

CG Variable Annuity 32.21%
Separate Account II
900 Cottage Grove Road
S-204
Hartford, CT 06152-0001

United Companies Life Insurance Company 8.91%
Separate Account One
8545 United Plaza Blvd.
Baton Rouge, LA 70809-2264
</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
% OF
OUTSTANDING
SERIES OWNER & ADDRESS SHARES
- -------------- ---------------------------------------- -----------
<S> <C> <C>
MFS Total Aetna Life Insurance & Annuity Company 25.27%
Return 151 Farmington Avenue
Series Hartford, CT 06156-0001
(Cont.)
Aetna Investment Company of America 8.95%
151 Farmington Avenue
Hartford, CT 06156-0001

First Citicorp Life Insurance Company 7.63%
Citicorp Plaza
P.O. Box 7031
Dover, DE 19903-7031

MFS Ameritas Life Insurance Company 52.43%
Utilities Separate Account VA-2 (Annuity)
Series 5900 O Street
Lincoln, NE 68510-2252

CG Variable Annuity 26.09%
Separate Account II
900 Cottage Grove Road
S-204
Hartford, CT 06152-0001

Kansas City Life Insurance Company 7.14%
Variable Annuity
P.O. Box 419139
Kansas City, MO 64141-6139

MFS High Jefferson-Pilot 6.65%
Income Series Separate Account A
P.O. Box 21008
Greensboro, NC 27420-1008

United of Omaha Life Insurance Company 76.59%
Mutual of Omaha Plaza
Omaha, NE 68175

Union Central Life Insurance Company 10.18%
Group Annuity
Mutual Funds -- Station 3
1876 Waycross Road
Cincinnati, OH 45240-2899

Union Central Life Insurance Company 8.97%
Individual Annuity
Mutual Funds--Station 3
1876 Waycross Road
Cincinnati, OH 45240-2899

MFS World CUNA Mutual Life Insurance 40.21%
Governments Variable Annuity Account
Series 2000 Heritage Way
Waverly, IA 50677-9202

Ameritas Life Insurance Company 5.30%
Separate Account VA-2 (Annuity)
5900 O Street
Lincoln, NE 68510-2234

United of Omaha Life Insurance Company 33.22%
Mutual of Omaha Plaza
Omaha, NE 68175

MFS/Foreign Massachusetts Financial Services Company 98.84%
& Colonial 500 Boylston Street
Emerging Boston, MA 02116-3740
Markets
Equity
Series
(Formerly
known as
MFS
Strategic
Fixed
Income
Series)

MFS Bond Kansas City Life Insurance Company 31.71%
Series Variable Annuity
P.O. Box 419139
Kansas City, MO 64141-6139
</TABLE>
<TABLE>
<CAPTION>
% OF
OUTSTANDING
SERIES OWNER & ADDRESS SHARES
- ------------ --------------------------------------- -----------
<S> <C> <C>
MFS Bond MFS Fund Distributors, Inc. 8.65%
Series 500 Boylston Street
(Cont.) Boston, MA 02116-3740

First Citicorp Life Insurance Company 37.44%
Citicorp Plaza
P.O. Box 7031
Dover, DE 19903-7031

CitiCorp Life Insurance Company 19.65%
CitiCorp Plaza
P.O. Box 7031
Dover, DE 19903-7031

MFS Limited MFS Fund Distributors, Inc. 90.03%
Maturity 500 Boylston Street
Series Boston, MA 02116-3740

Valley Forge Life Insurance Company 8.42%
Variable Annuity Separate Account
Financial Administration Services, Inc.
1290 Silas Dean Highway
Wethersfield, CT 06109-4303

MFS Money Citicorp Life Insurance Company 29.44%
Market Citicorp Plaza
Series P.O. Box 7031
Dover, DE 19903-7031

First Citicorp Life Insurance Company 69.44%
Citicorp Plaza
P.O. Box 7031
Dover, DE 19903-7031
</TABLE>

The Trust pays the compensation of non-interested Trustees (who will receive a
fee of $217 per year per Series plus $100 per meeting and $100 per committee
meeting attended per Series, together with such Trustee's out-of-pocket ex-
penses).

TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TRUSTEE FEES
FROM EACH
SERIES OTHER
TRUSTEE FEES THAN THE VALUE
FROM THE SERIES, THE
VALUE SERIES LIMITED MATURITY
AND THE SERIES AND TOTAL TRUSTEE
LIMITED THE STRATEGIC FEES FROM
MATURITY FIXED INCOME THE FUND
NAME OF TRUSTEE SERIES(1) SERIES(1) COMPLEX(2)
- --------------- ------------ ---------------- -------------
<S> <C> <C> <C>
A. Keith Brodkin.................... N/A N/A N/A
Nelson J. Darling................... $254 $1,017 $25,133
William R. Gutow.................... 254 1,017 25,133
</TABLE>

NOTES:
(1) For fiscal year ended December 31, 1996.
(2) For calendar year ended December 31, 1996. All Trustees receiving compen-
sation served as Trustees of 18 funds advised by MFS (having aggregate net
assets at December 31, 1996 of approximately $696 million).

The Declaration of Trust provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with lit-
igation in which they may be involved because of their offices with the Trust,
unless, as to liabilities of the Trust or its shareholders, it is finally ad-
judicated that they engaged in willful misfeasance, bad faith, gross negli-
gence or reckless disregard of the duties involved in their offices, or with

23
<PAGE>

respect to any matter, unless it is adjudicated that they did not act in good
faith in the reasonable belief that their actions were in the best interest of
the Trust. In the case of settlement, such indemnification will not be pro-
vided unless it has been determined pursuant to the Declaration of Trust, that
such officers or Trustees have not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.

INVESTMENT ADVISER

MFS and its predecessor organizations have a history of money management dat-
ing from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.), which in turn
is an indirect wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life").

INVESTMENT ADVISORY AGREEMENT

MFS manages the assets of each Series pursuant to an Amended and Restated In-
vestment Advisory Agreement with the Trust on behalf of each Series dated as
of April 14, 1994, as amended and restated on October 16, 1997 (the "Advisory
Agreement"). Under the Advisory Agreement, MFS provides the Series with over-
all investment advisory services. Subject to such policies as the Trustees may
determine, MFS makes investment decisions for the Series. For these services
and facilities, the Adviser receives an annual management fee, computed and
paid monthly, as disclosed in the Prospectus under the heading "Management of
the Series."

For the Trust's fiscal years ended December 31, 1996, 1995 and 1994, respec-
tively, MFS received the following aggregate fees and MFS waived the following
fees, in whole or in part, for the same periods:

For the fiscal year ended December 31, 1996:

<TABLE>
<CAPTION>
MANAGEMENT FEE EXPENSES ASSUMED
SERIES/1/ PAID TO MFS/2/ BY MFS
- --------- -------------- ----------------
<S> <C> <C>
Emerging Growth Series.......................... $314,262 $62,962
Value Series/3/................................. 3,196 12,079
Research Series................................. 92,348 56,859
Growth With Income Series....................... 30,792 42,658
Total Return Series............................. 60,979 87,721
Utilities Series................................ 39,863 91,877
High Income Series.............................. 56,169 45,293
World Governments Series........................ 126,898 172,556
Bond Series..................................... 2,924 40,829
Limited Maturity Series/3/...................... 1,064 12,705
Money Market Series............................. 858 46,831
</TABLE>
- -----------------

/1/ The Emerging Markets Equity Series had not commenced investment operations
prior to December 31, 1996.
/2/ After any applicable fee reduction.
/3/ For the period from the commencement of investment operations on August 14,
1996 to December 31, 1996.

For the fiscal year ended December 31, 1995:

<TABLE>
<CAPTION>
MANAGEMENT FEE EXPENSES ASSUMED
SERIES/1/ PAID TO MFS/2/ BY MFS
- --------- -------------- ----------------
<S> <C> <C>
Emerging Growth Series/3/....................... $ 6,262 $15,659
Research Series/4/.............................. 4,424 16,913
Growth With Income Series/5/.................... 597 16,226
Total Return Series/6/.......................... 10,826 25,092
Utilities Series/6/............................. 9,376 25,513
High Income Series/4/........................... 3,996 17,847
World Governments Series........................ 33,869 43,311
Bond Series/7/.................................. 247 17,623
Money Market Series/6/.......................... 594 24,976
</TABLE>
- -----------------

/1/ The Value Series, the Emerging Markets Equity Series and the Limited Matu-
rity Series had not commenced investment operations prior to December 31,
1995.
/2/ After any applicable fee reduction.
/3/ For the period from the commencement of investment operations on July 24,
1995 to December 31, 1995.
/4/ For the period from the commencement of investment operations on July 26,
1995 to December 31, 1995.
/5/ For the period from the commencement of investment operations on October 9,
1995 to December 31, 1995.
/6/ For the period from the commencement of investment operations on January 3,
1995 to December 31, 1995.
/7/ For the period from the commencement of investment operations on October 24,
1995 to December 31, 1995.

For the fiscal year ended December 31, 1994:

<TABLE>
<CAPTION>
MANAGEMENT FEE EXPENSES ASSUMED
SERIES/1/ PAID TO MFS/2/ BY MFS
- --------- -------------- ----------------
<S> <C> <C>
World Governments Series/3/..................... $7,604 $36,473
</TABLE>
- -----------------
/1/ The remaining Series had not commenced investment operations prior to Decem-
ber 31, 1994.
/2/ After any applicable fee reduction.
/3/ For the period from the commencement of investment operations on June 14,
1994 to December 31, 1994.

MFS pays the compensation of the Trust's officers and of any Trustee who is an
officer of MFS. MFS also furnishes at its own expense all necessary adminis-
trative services, including office space, equipment, clerical personnel, in-
vestment advisory facilities, and all executive and supervisory personnel nec-
essary for managing each Series' investments, effecting its portfolio transac-
tions and, in general, administering its affairs.

The Advisory Agreement with the Trust will remain in effect until August 1,
1998, and will continue in effect thereafter with respect to any Series only
if such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the Series' shares (as defined in "In-
vestment Restrictions") and, in either case, by a majority of the Trustees who
are not parties to the Advisory Agreement or interested persons of any such
party. The Advisory Agreement terminates automatically if it is assigned and
may be terminated with respect to any Series without penalty by vote of a ma-
jority of the Series' shares (as defined in "Investment Restrictions") or by
either party on not more than 60 days' nor less than 30 days' written notice.
The Advisory Agreement with respect to each Series provides that if MFS ceases
to serve as the investment adviser to the Series, the Series will change its
name so as to delete the term "MFS" and that MFS may render services to

24
<PAGE>

others and may permit other fund clients to use the term "MFS" in their names.
The Advisory Agreement also provides that neither MFS nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution and manage-
ment of the Series, except for willful misfeasance, bad faith or gross negli-
gence in the performance of its or their duties or by reason of reckless dis-
regard of its or their obligations and duties under the Advisory Agreement.

FCM -- FCM serves as the Emerging Markets Equity Series' sub-adviser pursuant
to a Sub-Advisory Agreement, dated October 16, 1997 between the Adviser and
FCM (the "FCM Sub-Advisory Agreements"). The FCM Sub- Advisory Agreement pro-
vides that the Adviser may delegate to FCM the authority to make investment
decisions for the Series. It is presently intended that FCM will provide port-
folio management services for the Series. For these services, the Adviser pays
FCM an annual fee computed and paid monthly in an amount equal to 1.00% of the
average daily net assets of the Series.

FCEM -- FCEM serves as the Foreign & Colonial Emerging Markets Equity Series'
sub-adviser pursuant to a Sub-Advisory Agreement, dated October 16, 1997 be-
tween FCM and FCEM (the "FCEM Sub-Advisory Agreement" and together with the
FCM Sub-Advisory Agreement, the "Sub-Advisory Agreement"). The FCEM Sub-Advi-
sory Agreement provides that FCM may delegate to FCEM the authority to make
investment decisions for the Series. It is presently intended that FCEM will
provide portfolio management services for the portion of the assets of the Se-
ries invested in emerging markets securities. For these services, FCM pays
FCEM an annual fee computed and paid monthly in an amount equal to 1.00% of
the average daily net assets managed by FCEM of the Series.

SUB-ADVISORY AGREEMENTS -- Each Sub-Advisory Agreement will remain in effect
until October 16, 1999, and will continue in effect thereafter only if such
continuance is specifically approved at least annually by the Board of Trust-
ees or by the vote of a majority of the Series' outstanding shares, and, in
either case, by a majority of the Trustees who are not parties to the Sub-Ad-
visory Agreement or interested persons of any such party. Each FCM Sub-Advi-
sory Agreement terminates automatically if it is assigned and may be termi-
nated without penalty by the Trustees, by vote of a majority of the Series'
outstanding shares, by the Adviser on not less than 30 days' nor more than 60
days' written notice or by FCM, on not less than 60 days' nor more than 90
days' written notice. The FCEM Sub-Advisory Agreement terminates automatically
if it is assigned and may be terminated without penalty by the Trustees, by
vote of a majority of the Series' on not less than 60 days' nor more than 90
days' written notice.

The FCM Sub-Advisory Agreement provides that if FCM ceases to serve as the
sub-adviser to the Series, the Series will change its name so as to delete the
words "Foreign & Colonial" and that FCM may render services to others and may
permit other fund clients to use the words "Foreign & Colonial" in their
names. Each Sub-Advisory Agreement specifically provides that neither FCM or
FCEM, as the case may be, nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the Series, except
for willful misfeasance, bad faith or gross negligence in the performance of
its or their duties or by reason of reckless disregard of its or their obliga-
tions and duties under the Sub- Advisory Agreement.

ADMINISTRATOR

MFS provides the Series with certain financial, legal, compliance, shareholder
communications and other administrative services pursuant to a Master Adminis-
trative Services Agreement dated March 1, 1997. Under this Agreement, the Se-
ries pays MFS an administrative fee of up to 0.015% per annum of the Series'
average daily net assets. This fee reimburses MFS for a portion of the costs
it incurs to provide such services.

CUSTODIAN

Investors Bank & Trust Company (the "Custodian") is the custodian of the
Trust's assets. The Custodian's responsibilities include safekeeping and con-
trolling each Series' cash and securities, handling the receipt and delivery
of securities, determining income and collecting interest and dividends on a
Series' investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts, and calculating the
daily net asset value of shares of the Series. The Custodian does not deter-
mine the investment policies of the Series or decide which securities the Se-
ries will buy or sell. Each Series may, however, invest in securities of the
Custodian and may deal with the Custodian as principal in securities transac-
tions. The Custodian has contracted with MFS for MFS to perform certain ac-
counting functions related to certain transactions for which the Adviser re-
ceives remuneration on a cost basis. State Street Bank and Trust Company
serves as the dividend and distribution disbursing agent of the Series.

SHAREHOLDER SERVICING AGENT

MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS and a registered transfer agent, is each Series' shareholder
servicing agent, pursuant to a Shareholder Servicing Agent Agreement with the
Trust on behalf of the Series, dated as of April 14, 1994 (the "Agency Agree-
ment"). The Shareholder Servicing Agent's responsibilities under the Agency
Agreement include administering and performing transfer agent functions and
the keeping of records in connection with the issuance, transfer and redemp-
tion of shares of the Series. For these services, the Shareholder Servicing
Agent will receive a fee calculated as a percentage of the average daily net
assets at an effective annual rate of up to 0.035%. In addition, the Share-
holder Servicing Agent will be reimbursed by a Series for certain expenses in-
curred by the Shareholder Servicing Agent on behalf of the Series. State
Street Bank and Trust Company, the dividend and distribution disbursing agent
for the Series, has contracted with the Share-

25
<PAGE>

holder Servicing Agent to administer and perform certain dividend and distri-
bution disbursing functions for the Series.

DISTRIBUTOR

MFD, a wholly owned subsidiary of MFS, serves as the distributor for the con-
tinuous offering of shares of the Trust pursuant to a Distribution Agreement
dated as of April 14, 1994 (the "Distribution Agreement").

As agent, MFD currently offers shares of each Series on a continuous basis to
the separate accounts of Participating Insurance Companies in all states in
which the Series or the Trust may from time to time be registered or where
permitted by applicable law. The Distribution Agreement provides that MFD ac-
cepts orders for shares at net asset value as no sales commission or load is
charged. MFD has made no firm commitment to acquire shares of any Series.

The Distribution Agreement will remain in effect until October 16, 1999 and
will continue in effect thereafter only if such continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority
of the Trust's shares (as defined in "Investment Restrictions") and in either
case, by a majority of the Trustees who are not parties to such Distribution
Agreement or interested persons of any such party. The Distribution Agreement
terminates automatically if it is assigned and may be terminated without pen-
alty by either party on not more than 60 days' nor less than 30 days' notice.

5. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

Specific decisions to purchase or sell securities for a Series are made by
persons affiliated with the Adviser or the Sub-Adviser. Any such person may
serve other clients of the Adviser or the Sub-Adviser, or any subsidiary of
the Adviser or the Sub-Adviser in a similar capacity. Changes in a Series' in-
vestments are reviewed by the Trust's Board of Trustees. A Series' portfolio
manager may serve other clients of MFS or any subsidiary of MFS in a similar
capacity.

The primary consideration in placing portfolio security transactions with bro-
ker-dealers for execution is to obtain and maintain the availability of execu-
tion at the most favorable prices and in the most effective manner possible.
MFS has complete freedom as to the markets in and the broker-dealers through
which it seeks this result. MFS attempts to achieve this result by selecting
broker-dealers to execute portfolio transactions on behalf of the Series and
other clients of MFS on the basis of their professional capability, the value
and quality of their brokerage services, and the level of their brokerage com-
missions. In the case of securities, such as fixed income securities, which
are principally traded in the over-the-counter market on a net basis through
dealers acting for their own account and not as brokers (where no stated com-
missions are paid but the prices include a dealer's markup or markdown), MFS
normally seeks to deal directly with the primary market makers, unless in its
opinion, better prices are available elsewhere. In the case of securities pur-
chased from underwriters, the cost of such securities generally includes a
fixed underwriting commission or concession. Securities firms or futures com-
mission merchants may receive brokerage commissions on transactions involving
options, Futures Contracts and Options on Futures Contracts and the purchase
and sale of underlying securities upon exercise of options. The brokerage com-
missions associated with buying and selling options may be proportionately
higher than those associated with general securities transactions. From time
to time, soliciting dealer fees are available to MFS on the tender of a Se-
ries' portfolio securities in so-called tender or exchange offers. Such solic-
iting dealer fees are in effect recaptured for the Series by MFS. At present
no other recapture arrangements are in effect.

Under the Advisory Agreements and as permitted by Section 28(e) of the Securi-
ties Exchange Act of 1934, as amended, MFS may cause a Series to pay a broker-
dealer which provides brokerage and research services to MFS an amount of com-
mission for effecting a securities transaction for a Series in excess of the
amount other broker-dealers would have charged for the transaction if MFS de-
termines in good faith that the greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of either a particular transaction or MFS's
overall responsibilities to the Series or to its other clients. Not all of
such services are useful or of value in advising a Series.

The term "brokerage and research services" includes advice as to the value of
securities, the advisability of purchasing or selling securities, and the
availability of purchasers or sellers of securities; furnishing analyses and
reports concerning issues, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts; and effecting se-
curities transactions and performing functions incidental thereto such as
clearance and settlement.

Although commissions paid on every transaction will, in the judgment of MFS,
be reasonable in relation to the value of the brokerage services provided,
commissions exceeding those which another broker might charge may be paid to
broker-dealers who were selected to execute transactions on behalf of the Se-
ries' and MFS's other clients in part for providing advice as to the avail-
ability of purchasers or sellers of securities and services in effecting secu-
rities transactions and performing functions incidental thereto such as clear-
ance and settlement.

Broker-dealers may be willing to furnish statistical, research and other fac-
tual information or services ("Research") to MFS for no consideration other
than brokerage or underwriting commissions. Securities may be bought or sold
from time to time through such broker-dealers on behalf of a Series. The
Trustees (together with the Trustees of the other MFS Funds) have directed MFS
to allocate a total of $39,100 of commission business from the various MFS
Funds to the Pershing Division of Donaldson, Lufkin & Jenrette as considera-
tion for the annual renewal of certain publications provided by Lipper Analyt-
ical
26
<PAGE>

Securities Corporation (which provides information useful to the Trustees in
reviewing the relationship between each Fund and MFS).

The investment management personnel of MFS attempt to evaluate the quality of
Research provided by brokers. Results of this effort are sometimes used by MFS
as a consideration in the selection of brokers to execute portfolio transac-
tions. However, MFS is unable to quantify the amount of commissions which will
be paid as a result of such Research because a substantial number of transac-
tions will be effected through brokers which provide Research but which were
selected principally because of their execution capabilities.

The management fee that each Series pays to MFS will not be reduced as a con-
sequence of the receipt of brokerage and research services by MFS. To the ex-
tent a Series' portfolio transactions are used to obtain such services, the
brokerage commissions paid by the Series will exceed those that might other-
wise be paid, by an amount which cannot be presently determined. Such services
would be useful and of value to MFS in serving both a Series and other clients
and, conversely, such services obtained by the placement of brokerage business
of other clients would be useful to MFS in carrying out its obligations to the
Series. While such services are not expected to reduce the expenses of MFS,
MFS would, through use of the services, avoid the additional expenses which
would be incurred if it should attempt to develop comparable information
through its own staff.

For fiscal year ended December 31, 1996, the Emerging Growth Series, Value Se-
ries, Research Series, Growth With Income Series, Total Return Series and
Utilities Series paid brokerage commissions of $110,808, $2,473, $49,208,
$7,661, $10,035 and $20,924, respectively, on total transactions of
$73,634,924, $1,578,092, $31,609,275, $9,321,266, $9,329,814, and $11,241,156,
respectively. For fiscal year ended December 31, 1995, the Emerging Growth Se-
ries, Utilities Series, Total Return Series, Growth With Income Series and Re-
search Series paid brokerage commissions of $9,408, $8,281, $2,571, $191 and
$6,332, respectively, on total transactions of $6,057,384, $4,450,825,
$2,161,403, $346,170 and $4,278,466, respectively. Not all of the Series'
transactions are equity security transactions which involve the payment of
brokerage commissions. During the fiscal year ended December 31, 1996, the Re-
search Series owned securities issued by Chase Manhattan, Inc., which had a
value of $512,000 at fiscal year end, Growth With Income Series owned securi-
ties issued by Chase Manhattan and Merrill Lynch, which had a value of $60,000
at fiscal year end, Total Return Series owned securities issued by Chase Man-
hattan, Inc., Bank of America, Lehman Brothers and Nations Bank, which had a
value of $375,000 at fiscal year end, and Bond Series owned securities issued
by Lehman Brothers and Bank of America, which had a value of $15,000 at fiscal
year end. Each of these entities are regular broker dealers of such Series.

In certain instances there may be securities which are suitable for a Series'
portfolio as well as for that of one or more of the other clients of MFS. In-
vestment decisions for a Series and for such other clients are made with a
view to achieving their respective investment objectives. It may develop that
a particular security is bought or sold for only one client even though it
might be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment advis-
er, particularly when the same security is suitable for the investment objec-
tives of more than one client. When two or more clients are simultaneously en-
gaged in the purchase or sale of the same security, the securities are allo-
cated among clients in a manner believed by the Adviser to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as a Series is concerned.
In other cases, however, it is believed that a Series' ability to participate
in volume transactions will produce better executions for the Series.

6. TAX STATUS

Shares of the Series are offered only to the separate accounts of the Partici-
pating Insurance Companies that fund Contracts. See the applicable Contract
prospectus for a discussion of the special taxation of those companies with
respect to those accounts and of the Contract holders.

Each Series has elected to be, and intends to qualify each year for treatment
as, a "regulated investment company" under Subchapter M of the Code by meeting
all applicable requirements of Subchapter M, including requirements as to the
nature of each Series' gross income, the amount of each Series' distributions,
the holding period of assets disposed of by each Series and the composition of
each Series' portfolio assets. Because each Series intends to distribute all
of its net investment income and net realized capital gains to shareholders in
accordance with the timing requirements imposed by the Code, it is not ex-
pected that any of the Series will be required to pay any federal income or
excise taxes, although a Series which has foreign-source income may be subject
to foreign withholding taxes. If any Series failed to qualify for treatment as
a "regulated investment company" in any year, it would incur regular corporate
federal income tax upon its taxable income.

Each Series intends to continue to diversify its assets as required by section
817(h) of the Code and the regulations thereunder. These requirements, which
are in addition to the diversification requirements of Subchapter M, place
certain limitations on the proportion of each Series' assets that may be rep-
resented by any single investment and securities from the same issuer. If a
Series failed to comply with these requirements, Contracts that invest in the
Series would not be treated as annuity, endowment or life insurance contracts
under the Code.

Any investment by a Series in zero coupon bonds, deferred interest bonds, pay-
ment-in-kind bonds, certain stripped securities and certain securities pur-
chased at a market discount will

27
<PAGE>

cause the Series to recognize income prior to the receipt of cash payments
with respect to those securities. In order to distribute this income and avoid
a tax on the Series, the Series may be required to liquidate portfolio securi-
ties that it might otherwise have continued to hold, potentially resulting in
additional taxable gain or loss to the Series.

A Series' transactions in options, Futures Contracts, Forward Contracts, swaps
and related transactions will be subject to special tax rules that may affect
the amount, timing and character of Series income and distributions to share-
holders. For example, certain positions held by a Series on the last business
day of each taxable year will be marked to market (i.e., treated as if closed
out) on that day, and any resulting gain or loss, in addition to gains and
losses from actual dispositions of such positions, will be treated as 60%
long-term and 40% short-term capital gain or loss. Certain positions held by a
Series that substantially diminish its risk of loss with respect to other po-
sitions in its portfolio may constitute "straddles," and may be subject to
special tax rules that would cause deferral of Series losses, adjustments in
the holding periods of Series securities and conversion of short-term into
long-term capital losses. Certain tax elections exist for straddles that may
alter the effects of these rules. Each Series will limit its activities in op-
tions, Futures Contracts, Forward Contracts and swaps and related transactions
to the extent necessary to meet the requirements of Subchapter M.

Special tax considerations apply with respect to foreign investments of a Se-
ries. Foreign exchange gains and losses realized by a Series will generally be
treated as ordinary income and losses. Use of foreign currencies for non-hedg-
ing purposes may be limited in order to avoid tax on a Series. Investment by a
Series in "passive foreign investment companies" may also be limited in order
to avoid a tax on the Series. Investment income received by a Series from for-
eign securities may be subject to foreign income taxes withheld at the source.
The United States has entered into tax treaties with many foreign countries
that may entitle a Series to a reduced rate of tax or an exemption from tax on
such income; the Series' intend to qualify for treaty reduced rates where
available. It is impossible, however, to determine a Series effective rate of
foreign tax in advance, since the amount of the Series' assets to be invested
within various countries is not known.

The foregoing is only a general summary of some of the important federal in-
come tax considerations generally affecting the Series. No attempt is made to
present a complete explanation of the federal tax treatment of their activi-
ties, and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential investors are urged to consult their own tax
advisers for more detailed information and for information regarding any
state, local or foreign taxes applicable to the Series.

7. NET INCOME AND DISTRIBUTIONS

MONEY MARKET SERIES: The net income attributable to the Money Market Series is
determined each day during which the Exchange is open for trading. As of the
date of this SAI, the Exchange is open for trading every weekday except for
the following holidays (or the days on which they are observed): New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day.

The net income attributable to the Money Market Series (from the time of the
immediately preceding determination thereof) shall consist of (i) all interest
income accrued on the portfolio assets of the Series, (ii) less all actual and
accrued expenses of the Series determined in accordance with generally ac-
cepted accounting principles, and (iii) plus or minus net realized gains and
losses and net unrealized appreciation or depreciation, if any, on the assets
of the Series. Interest income includes discount earned (including both origi-
nal issue and market discount) on discount paper accrued ratably to the date
of maturity.

Since the net income is declared as a dividend each time the net income is de-
termined, the net asset value per share (i.e., the value of the net assets of
the Money Market Series divided by the number of shares outstanding) remains
at $1.00 per share immediately after each such determination and dividend dec-
laration. Any increase in the value of a shareholder's investment, represent-
ing the reinvestment of dividend income, is reflected by an increase in the
number of shares in its account.

It is expected that the Money Market Series will have a positive net income at
the time of each determination thereof. If for any reason the net income de-
termined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of a portfolio security, the Money Market Series
would first offset the negative amount with respect to each shareholder ac-
count from the dividends declared during the month with respect to each such
account. If and to the extent that such negative amount exceeds such declared
dividends at the end of the month (or during the month in the case of an ac-
count liquidated in its entirety), the Money Market Series could reduce the
number of its outstanding shares by treating each shareholder of the Money
Market Series as having contributed to its capital that number of full and
fractional shares of the Money Market Series in the account of such share-
holder which represents its proportion of such excess. Each shareholder the
Money Market Series will be deemed to have agreed to such contribution in
these circumstances by its investment in the Money Market Series. This proce-
dure would permit the net asset value per share of the Money Market Series to
be maintained at a constant $1.00 per share.

ALL OTHER SERIES: Each Series other than the Money Market Series intends to
distribute to its shareholders annually dividends substantially equal to all
of its net investment income. Such Series' net investment income consists of
non-capital gain income less expenses. Such Series' intend to distribute net
realized short- and long-term capital gains, if any, at least annually. Share-
holders will be informed of the tax consequences of such distributions, in-
cluding whether any portion represents

28
<PAGE>

a return of capital, after the end of each calendar year. (For additional tax-
ation information, see "Tax Status" above.)

8. DETERMINATION OF NET ASSET VALUE; PERFORMANCE INFORMATION

NET ASSET VALUE

MONEY MARKET SERIES: Portfolio securities of the Money Market Series are val-
ued at amortized cost, which the Trustees have determined in good faith con-
stitutes fair value for the purposes of complying with the 1940 Act. This val-
uation method will continue to be used until such time as the Trustees deter-
mine that it does not constitute fair value for such purposes. The Money Mar-
ket Series will limit its portfolio to those investments in U.S. dollar-denom-
inated instruments which the Board of Trustees determines present minimal
credit risks, and which are of high quality as determined by any major rating
service or, in the case of any instrument that is not so rated, of comparable
quality as determined by the Board of Trustees. The Money Market Series has
also agreed to maintain a dollar-weighted average maturity of 90 days or less
and to invest only in securities maturing in 13 months or less. The Board of
Trustees has established procedures designed to stabilize the net asset value
per share of the Money Market Series, as computed for the purposes of sales
and redemptions, at $1.00 per share. If the Trustees determine that a devia-
tion from the $1.00 per share price may exist which may result in a material
dilution or other unfair result to investors or existing shareholders, they
will take corrective action they regard as necessary and appropriate, which
action could include the sale of instruments prior to maturity (to realize
capital gains or losses); shortening average portfolio maturity; withholding
dividends; or using market quotations for valuation purposes.

ALL OTHER SERIES: Securities, futures contracts and options in a Series' port-
folio (other than short-term obligations) for which the principal market is
one or more securities or commodities exchanges will be valued at the last re-
ported sale price or at the settlement price prior to the determination (or if
there has been no current sale, at the closing bid price) on the primary ex-
change on which such securities, futures contracts or options are traded; but
if a securities exchange is not the principal market for securities, such se-
curities will, if market quotations are readily available, be valued at cur-
rent bid prices, unless such securities are reported on the Nasdaq stock mar-
ket, in which case they are valued at the last sale price or, if no sales oc-
curred during the day, at the last quoted bid price. Debt securities (other
than short-term obligations but including listed issues) in a Series' portfo-
lio are valued on the basis of valuations furnished by a pricing service which
utilizes both dealer-supplied valuations and electronic data processing tech-
niques which take into account appropriate factors such as institutional-sized
trading in similar groups of securities, yields, quality, coupon rate, maturi-
ty, type of issue, trading characteristics and other market data, without ex-
clusive reliance upon quoted prices or exchange or over-the-counter prices,
since such valuations are believed to reflect more accurately the fair value
of such securities. Short-term obligations, if any, in a Series' portfolio are
valued at amortized cost, which constitutes fair value as determined by the
Board of Trustees. Short-term securities with a remaining maturity in excess
of 60 days will be valued based upon dealer supplied valuations. Portfolio se-
curities and over-the-counter options, for which there are no quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.

PERFORMANCE INFORMATION

MONEY MARKET SERIES: The Money Market Series will provide current annualized
and effective annualized yield quotations based on the daily dividends of
shares of the Money Market Series. These quotations may from time to time be
used in advertisements, shareholder reports or other communications to share-
holders.

Any current yield quotation of the Money Market Series which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act
shall consist of an annualized historical yield, carried at least to the near-
est hundredth of one percent, based on a specific seven calendar day period
and shall be calculated by dividing the net change in the value of an account
having a balance of one share of that class at the beginning of the period by
the value of the account at the beginning of the period and multiplying the
quotient by 365/7. For this purpose the net change in account value would re-
flect the value of additional shares purchased with dividends declared on the
original share and dividends declared on both the original share and any such
additional shares, but would not reflect any realized gains or losses from the
sale of securities or any unrealized appreciation or depreciation on portfolio
securities. In addition, any effective yield quotation of the Money Market Se-
ries so used shall be calculated by compounding the current yield quotation
for such period by multiplying such quotation by 7/365, adding 1 to the prod-
uct, raising the sum to a power equal to 365/7, and subtracting 1 from the re-
sult. These yield quotations should not be considered as representative of the
yield of the Money Market Series in the future since the yield will vary based
on the type, quality and maturities of the securities held in its portfolio,
fluctuations in short-term interest rates and changes in the Money Market Se-
ries expenses. Yield quotations for the Series are presented in Appendix A at-
tached hereto.

ALL OTHER SERIES:

TOTAL RATE OF RETURN -- Each Series, other than the Money Market Series, will
calculate its total rate of return of its shares for certain periods by deter-
mining the average annual compounded rates of return over those periods that
would cause an

29
<PAGE>

investment of $1,000 (made with all distributions reinvested) to reach the
value of that investment at the end of the periods. Each Series may also cal-
culate total rates of return which represent aggregate performance over a pe-
riod or year-by-year performance. Total rate of return quotations for each Se-
ries are presented in Appendix A attached hereto.

YIELD -- Any yield quotation for a Series, other than the Money Market Series,
is based on the annualized net investment income per share of that Series for
the 30-day period ended December 31, 1996 (the end of the Trust's fiscal
year). The yield for such a Series is calculated by dividing its net invest-
ment income earned during the period by the offering price per share of that
Series on the last day of the period. The resulting figure is then annualized.
Net investment income per share is determined by dividing (i) the dividends
and interest of that Series during the period, minus accrued expenses of that
Series for the period by (ii) the average number of shares of that Series en-
titled to receive dividends during the period multiplied by the offering price
per share on the last day of the period. Yield quotations for each Series are
presented in Appendix A attached hereto.

From time to time each Series may, as appropriate, quote fund rankings or re-
print all or a portion of evaluations of fund performance and operations ap-
pearing in various independent publications, including but not limited to the
following: Money, Fortune, U.S. News and World Report, Kiplinger's Personal
Finance, The Wall Street Journal, Barron's, Investors Business Daily, News-
week, Financial World, Financial Planning, Investment Advisor, USA Today, Pen-
sions and Investments, SmartMoney, Forbes, Global Finance, Registered Repre-
sentative, Institutional Investor, the Investment Company Institute, Johnson's
Charts, Morningstar, Lipper Analytical Services, Inc., Variable Annuity Re-
search Data Service, CDA Wiesenberger, Shearson Lehman and Salomon Bros. Indi-
ces, Ibbotson, Business Week, Lowry Associates, Media General, Investment Com-
pany Data, The New York Times, Your Money, Strangers Investment Advisor, Fi-
nancial Planning on Wall Street, Standard and Poor's, Individual Investor, The
100 Best Mutual Funds You Can Buy, by Gordon K. Williamson, Consumer Price In-
dex, and Sanford C. Bernstein & Co. Series' performance may also be compared
to the performance of other mutual funds tracked by financial or business pub-
lications or periodicals.

From time to time a Series may discuss or quote its current portfolio manager
as well as other investment personnel, including such persons' views on: the
economy; securities markets; portfolio securities and their issuers; invest-
ment philosophies, strategies, techniques and criteria used in the selection
of securities to be purchased or sold for the Series; the Series' portfolio
holdings; the investment research and analysis process; the formulation and
evaluation of investment recommendations; and the assessment and evaluation of
credit, interest rate, market and economic risks and similar or related mat-
ters.

The Series may also quote evaluations mentioned in independent radio or tele-
vision broadcasts.

From time to time the Series may use charts and graphs to illustrate the past
performance of various indices such as those mentioned above.

From time to time the Fund may also discuss or quote the views of its distrib-
utor, its investment adviser and other financial planning, legal, tax, ac-
counting, insurance, estate planning and other professionals, or from surveys,
regarding individual and family financial planning. Such views may include in-
formation regarding: retirement planning; tax management strategies; estate
planning; general investment techniques (e.g., asset allocation and disci-
plined saving and investing); business succession; ideas and information pro-
vided through the MFS Heritage Planning(TM) program, an intergenerational fi-
nancial planning assistance program; issues with respect to insurance (e.g.,
disability and life insurance and Medicare supplemental insurance); issues re-
garding financial and health care management for elderly family members; and
similar or related matters.

MFS FIRSTS: MFS has a long history of innovations.

- --1924 -- Massachusetts Investors Trust is established as the first open-end
mutual fund in America.

- --1924 -- Massachusetts Investors Trust is the first mutual fund to make full
public disclosure of its operations in shareholder reports.

- --1932 -- One of the first internal research departments is established to
provide in-house analytical capability for an investment management firm.

- --1933 -- Massachusetts Investors Trust is the first mutual fund to register
under the 1933 Act ("Truth in Securities Act" or "Full Disclosure Act").

- --1936 -- Massachusetts Investors Trust is the first mutual fund to allow
shareholders take capital gain distributions either in additional shares or
in cash.

- --1976 -- MFS(R) Municipal Bond Fund is among the first municipal bond funds
established.

- --1979 -- Spectrum becomes the first combination fixed/ variable annuity with
no initial sales charge.

- --1981 -- MFS(R) World Governments Fund is established as America's first
globally diversified fixed income mutual fund.

- --1984 -- MFS(R) Municipal High Income Fund is the first mutual fund to seek
high tax-free income from lower-rated municipal securities.

- --1986 -- MFS(R) Managed Sectors Fund becomes the first mutual fund to target
and shift investments among industry sectors for shareholders.

30
<PAGE>

- --1986 -- MFS(R) Municipal Income Trust is the first closed-end, high-yield
municipal bond fund traded on the New York Stock Exchange.

- --1987 -- MFS(R) Multimarket Income Trust is the first closed-end, multimarket
high income fund listed on the New York Stock Exchange.

- --1989 -- MFS Regatta becomes America's first non-qualified market value ad-
justed fixed/variable annuity.

- --1990 -- MFS(R) World Total Return Fund is the first global balanced fund.

- --1993 -- MFS(R) World Growth Fund is the first global emerging markets fund
to offer the expertise of two sub-advisers.

- --1993 -- MFS becomes money manager of MFS(R) Union Standard Trust, the first
trust to invest solely in companies deemed to be union-friendly by an Advi-
sory Board of senior labor officials, senior managers of companies with sig-
nificant labor contracts, academics and other national labor leaders or ex-
perts.

9. DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES

The Trust's Declaration of Trust permits the Trustees of the Trust to issue an
unlimited number of full and fractional Shares of Beneficial Interest (without
par value) of one or more separate series and to divide or combine the shares
of any series into a greater or lesser number of shares without thereby chang-
ing the proportionate beneficial interests in that series. The Trustees have
currently authorized shares of the twelve series identified on page 2 hereof.
The Declaration of Trust further authorizes the Trustees to classify or re-
classify any series of shares into one or more classes. The Trustees have no
current intention to classify more than one class of shares. Each share of a
Series represents an equal proportionate interest in the assets of the Series.
Upon liquidation of a Series, shareholders of the Series are entitled to share
pro rata in the net assets of the Series available for distribution to share-
holders. The Trust reserves the right to create and issue additional series or
classes of shares, in which case the shares of each class would participate
equally in the earnings, dividends and assets allocable to that class of the
particular series.

Shareholders are entitled to one vote for each share held and may vote in the
election of Trustees and on other matters submitted to meetings of sharehold-
ers. To the extent any Series' shareholder owns a controlling percentage of
the Series' shares, such shareholder may affect the outcome of such matters to
a greater extent that other Series shareholders (see "Description of Shares,
Voting Rights and Liabilities" in the Prospectus). Although Trustees are not
elected annually by the shareholders, shareholders have under certain circum-
stances the right to remove one or more Trustees in accordance with the provi-
sions of Section 16(c) of the 1940 Act. No material amendment may be made to
the Declaration of Trust without the affirmative vote of a majority of the
Trust's shares. Shares have no pre-emptive or conversion rights. Shares are
fully paid and non-assessable. The Trust may enter into a merger or consolida-
tion, or sell all or substantially all of its assets (or all or substantially
all of the assets belonging to any series of the Trust), if approved by the
vote of the holders of two-thirds of the Trust's outstanding shares voting as
a single class, or of the affected series of the Trust, as the case may be,
except that if the Trustees of the Trust recommend such merger, consolidation
or sale, the approval by vote of the holders of a majority of the Trust's or
the affected series' outstanding shares (as defined in "Investment Restric-
tions") will be sufficient. The Trust or any series of the Trust may also be
terminated (i) upon liquidation and distribution of its assets, if approved by
the vote of the holders of two-thirds of its outstanding shares, or (ii) by
the Trustees by written notice to the shareholders of the Trust of the af-
fected series. If not so terminated, the Trust will continue indefinitely.

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under cer-
tain circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust contains an express disclaimer of share-
holder liability for acts or obligations of the Trust and provides for indem-
nification and reimbursement of expenses out of Trust property for any share-
holder held personally liable for the obligations of the Trust. The Declara-
tion of Trust also provides that it shall maintain appropriate insurance (for
example, fidelity bonding and errors and omissions insurance) for the protec-
tion of the Trust, its shareholders, Trustees, officers, employees and agents
covering possible tort or other liabilities. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations.

The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust and that the Trustees will not be liable for any action or failure to
act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful misfea-
sance, bad faith, gross negligence, or reckless disregard of the duties in-
volved in the conduct of his office.

10. INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS

Deloitte & Touche llp are the Trust's independent auditors, providing audit
services, tax return preparation, and assistance and consultation with respect
to the preparation of filings with the SEC. The Statement of Assets and Lia-
bilities for the Emerging Markets Equity Series, formerly known as the MFS
Strategic Fixed Income Series, at December 31, 1996, the Notes thereto and the
Independent Auditors' Report dated February 7, 1997 have been included in this
SAI in reliance upon the report of Deloitte and Touche llp, independent certi-
fied public accoun -

31
<PAGE>

tants, as experts in accounting and auditing. With respect to the Emerging
Growth, Value, Research, Growth With Income, Total Return, Utilities, High In-
come, World Governments, Bond, Limited Maturity and Money Market Series, the
Portfolio of Investments at December 31, 1996, the Statement of Assets and Li-
abilities at December 31, 1996, the Statement of Operations for the period
ended December 31, 1996, the Statement of Changes in Net Assets for the period
ended December 31, 1996, the Notes to Financial Statements and the Independent
Auditors' Report, each of which is included in the Annual Reports to Share-
holders of these Series, are incorporated by reference into this SAI and have
been so incorporated in reliance upon the report of Deloitte & Touche llp, in-
dependent certified public accountants, as experts in accounting and auditing.
Copies of these Annual Reports accompany this SAI.

32
<PAGE>

MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES

(FORMERLY KNOWN AS MFS STRATEGIC FIXED INCOME SERIES)

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996

<TABLE>
<S> <C>
Assets:
Cash.................................................................. $ 7,638
Deferred organization expenses........................................ 9,188
-------
Total assets.......................................................... $16,826
Liabilities:
Accrued expenses...................................................... 8,226
-------
Net assets............................................................ $ 8,600
=======
Net Asset Value, Redemption Price and Offering Price Per Share of
Beneficial Interest
(860 shares outstanding for each Series).............................. $ 10.00
=======
</TABLE>

NOTES:

(1) The MFS Variable Insurance Trust (the "Trust") was organized on February
1, 1994 as a business trust under the laws of The Commonwealth of Massa-
chusetts. The Trust currently consists of twelve series of shares or funds
(the "Series"): MFS Emerging Growth Series, MFS Value Series, MFS Research
Series, MFS Growth with Income Series, MFS Total Return Series, MFS Utili-
ties Series, MFS High Income Series, MFS World Governments Series,
MFS/Foreign & Colonial Emerging Markets Equity Series, MFS Bond Series,
MFS Limited Maturity Series and MFS Money Market Series. The MFS/Foreign &
Colonial Emerging Markets Equity Series has been inactive since that date
except for matters relating to its organization and the Trust's registra-
tion as an investment company under the Investment Company Act of 1940 and
the sale of 860 shares of beneficial interest (the "initial shares") of
each such Series to Massachusetts Financial Services Company.
(2) Organization expenses are being deferred and will be amortized over five
years beginning with the commencement of investment operations. The amount
paid by any Series on any redemption by Massachusetts Financial Services
Company, or any current holder of any Series' initial shares, will be re-
duced by the pro rata portion of any unamortized organization expenses
which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.

33
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees of MFS Variable Insurance Trust and Shareholders of
MFS/Foreign & Colonial Emerging Markets Equity Series:

We have audited the accompanying statement of assets and liabilities of
MFS/Foreign & Colonial Emerging Markets Equity Series (the "Series") (a series
of the MFS Variable Insurance Trust (the "Trust")), formerly known as MFS
Strategic Fixed Income Series, as of December 31, 1996. This financial state-
ment is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the over-
all financial statement presentation. We believe that our audit of the state-
ment of assets and liabilities provides a reasonable basis for our opinion.

In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of the Series at December 31,
1996 in conformity with generally accepted accounting principles.

Deloitte & Touche llp

Boston, Massachusetts
February 7, 1997

34
<PAGE>

APPENDIX A

PERFORMANCE QUOTATIONS

All performance quotations are for the period ended June 30, 1997.

<TABLE>
<CAPTION>
AVERAGE ANNUAL 30-DAY
TOTAL RETURNS ACTUAL 30-DAY YIELD
--------------------- YIELD (INCLUDING (WITHOUT
SERIES 1 YEAR LIFE OF SERIES WAIVERS) WAIVERS)
- -------------------------------- ------ -------------- ---------------- --------
<S> <C> <C> <C> <C>
Emerging Growth................. % %/1/ -- --
Value........................... -- %/2/ -- --
Research........................ % %/3/ -- --
Growth with Income.............. % %/4/ -- --
Total Return.................... % %/5/ -- --
Utilities....................... % %/5/ -- --
High Income..................... % %/3/ % %
World Governments............... % %/6/ % %
Bond............................ % %/7/ % %
Limited Maturity................ -- %/2/ % %
Money Market.................... % %/5/ N/A N/A
</TABLE>
- --------------------
/1/ From the commencement of investment operations on July 24, 1995.
/2/ Aggregate Annual Total Rate of Return from the commencement of investment
operations on August 14, 1996.
/3/ From the commencement of investment operations on July 26, 1995.
/4/ From the commencement of investment operations on October 9, 1995.
/5/ From the commencement of investment operations on January 3, 1995.
/6/ From the commencement of investment operations on June 14, 1994.
/7/ From the commencement of investment operations on October 24, 1995.

The current annualized yield of the Money Market Series for the seven-day pe-
riod ended June 30, 1997 was %, and the effective annualized yield of the
Money Market Series for such period was %.

A-1
<PAGE>

INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
(800) 637-8730

DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
(617) 954-5000

CUSTODIAN
Investors Bank & Trust Company
89 South Street, Boston, Massachusetts 02110

DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110

SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
500 Boylston Street, Boston, MA 02116
Toll free: (800) 637-8730
MAILING ADDRESS
P.O. Box 1400, Boston, MA 02104-9985

INDEPENDENT AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110

MFS(R) VARIABLE
INSURANCE TRUST SM

500 BOYLSTON STREET
BOSTON, MA 02116

[ART]
<PAGE>

PART C
------

Item 24. (a) Financial Statements and Exhibits
---------------------------------

All Series (except MFS/Foreign & Colonial Emerging Markets Equity
----------------------------------------------
Series)
-------

Financial Statements Included in Parts A and B:

Included in Part A of this Registration Statement:
Financial Highlights for:

the MFS Emerging Growth Series for the period from commencement
of investment operations on July 24, 1995 to December 31, 1996;

the MFS Value Series and the MFS Limited Maturity Series for the
period from commencement of investment operations on August 14,
1996 to December 31, 1996;

the MFS Research Series and the MFS High Income Series for the
period from commencement of investment operations on July 26,
1995 to December 31, 1996;

the MFS Total Return Series, the MFS Utilities Series and the MFS
Money Market Series for the period from commencement of
investment operations on January 3, 1995 to December 31, 1996;

the MFS Growth With Income Series for the period from
commencement of investment operations on October 9, 1995 to
December 31, 1996;

the MFS World Governments Series for the period from commencement
of investment operations on June 14, 1994 to December 31, 1996;
and

the MFS Bond Series for the period from commencement of
investment operations on October 24, 1995 to December 31, 1996.

Included in Part B of this Registration Statement:

At December 31, 1996:
Portfolio of Investments*
Statement of Assets and Liabilities*

For the year ended December 31, 1996:
Statement of Operations*
<PAGE>

For the two years in the period ended December 31, 1996:
Statement of Changes in Net Assets*

Statement of Operations* and Statement of Changes in Net Assets*
for:

the MFS Emerging Growth Series for the period from commencement
of investment operations on July 24, 1995 to December 31, 1996;

the MFS Value Series and the MFS Limited Maturity Series for the
period from commencement of investment operations on August 14,
1996 to December 31, 1996;

the MFS Research Series and the MFS High Income Series for the
period from commencement of investment operations on July 26,
1995 to December 31, 1996;

the MFS Growth With Income Series for the period from
commencement of investment operations on October 9, 1995 to
December 31, 1996;

the MFS Total Return Series, the MFS Utilities Series and the MFS
Money Market Series for the period from commencement of
investment operations on January 3, 1995 to December 31, 1996;

the MFS World Governments Series for the two years in the period
ended December 31, 1996; and

the MFS Bond Series for the period from commencement of
investment operations on October 24, 1995 to December 31, 1996.

MFS/Foreign & Colonial Emerging Markets Equity Series
--------------------------------------------------

Financial Statements Included in Parts A and B:

Included in Part A of this Registration Statement:
None

Included in Part B of this Registration Statement:

At December 31, 1996:
Statement of Assets and Liabilities
Opinion of Independent Auditors

- ------------------
* Incorporated by reference to the Annual Reports to Shareholders of the
Series (with the exception of the MFS Strategic Fixed Income Series), each
dated December 31, 1996, filed with the SEC via EDGAR on March 4, 1997.]
<PAGE>

(b) Exhibits

1 (a) Declaration of Trust, dated January 28, 1994. (3)

(b) Amendment to Declaration of Trust - Designation of
Series of Shares dated January 31, 1994. (3)

(d) Amendment to Declaration of Trust -Redesignation of
Series, dated April 25, 1996. (4)

(e) Form of Certificate of Amendment to Declaration of
Trust - Redesignation of Series

2 By-Laws, dated January 28, 1994. (3)

3 Not Applicable.

4 Not Applicable.

5 (a) Form of Investment Advisory Agreement by and
between Registrant and Massachusetts Financial
Services Company, dated April 14,1994 as amended
and restated on October 16, 1997; filed
herewith.

5 (b) Form of Sub-Advisory Agreement by and between
Massachusetts Financial Services Company and
Foreign & Colonial Management Ltd., dated October
16, 1997; filed herewith.

5 (c) Form of Sub-Advisory Agreement by and between
Foreign & Colonial Management Ltd. And Foreign &
Colonial Emerging Markets Limited, dated October
16, 1997; filed herewith.

6 Distribution Agreement between Registrant and
Massachusetts Investors Services, Inc., dated April
14, 1994. (3)

<PAGE>

7 Not Applicable.

8 Custodian Agreement between Registrant and
Investors Bank & Trust Company, dated April 14,
1994. (3)

9 (a) Shareholder Servicing Agent Agreement between
Registrant and MFS Service Center, dated April 14,
1994. (3)

(b) Dividend Disbursing Agency Agreement between
Registrant and State Street Bank and Trust, dated
April 14, 1994. (3)

(d) Third Amendment dated February 14, 1997 to Loan
Agreement dated February 21, 1995 by and among the
Banks named therein and The First National Bank of
Boston. (7)

(e) Master Administrative Services Agreement, dated
March 1, 1997. (5)

10 Opinion and Consent of Counsel filed with
Registrant's Rule 24f-2 Notice for fiscal year
ended December 31, 1996 on February 28, 1997.

11 Consent of Deloitte & Touche LLP; filed herewith.

12 Not Applicable.

13 Investment Representation Letter. (3)

14 Not Applicable.

15 Not Applicable.

16 Schedule of Computation for Performance
Quotations -Average Annual Total Rate of Return,
Aggregate Total Rate of Return and Standardized
Yield. (1)

17 Financial Data Schedule for each operational Series
of the Trust for the year ended December 30, 1996.
(6)

18 Not Applicable.

Power of Attorney dated August 12, 1994. (3)

- -------------------
(1) Incorporated by reference to MFS Municipal Series Trust (File Nos. 2-92915
and 811-4096) Post-Effective Amendment No. 26 filed with the SEC via EDGAR
on February 22, 1995.
(2) Incorporated by reference to Amendment No. 8 on Form N-2 for MFS Municipal
Income Trust (File No. 811-4841) filed with the SEC via EDGAR on February
28, 1995.
<PAGE>

(3) Incorporated by reference to Registrant's Post-Effective Amendment No. 4
filed with the SEC via EDGAR on October 26, 1995.
(4) Incorporated by reference to Registrant's Post-Effective Amendment No. 6
filed with the SEC via EDGAR on May 30, 1996.
(5) Incorporated by reference to MFS/Sun Life Series Trust (File Nos. 2-83616
and 811-3732) Post-Effective Amendment No. 19 filed with the SEC via EDGAR
on March 18, 1997.

(6) Incorporated by reference to Registrant's Post-Effective Amendment No. 7
filed with the SEC via EDGAR on April 29, 1997.

(7) Incorporated by reference to MFS Series Trust I (File No. 33-7638 and 811-
4777) Post-Effective Amendment No. 28 filed with the SEC via EDGAR on June
26, 1997.
<PAGE>

Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------

Not applicable.

Item 26. Number of Holders of Securities
-------------------------------

MFS Emerging Growth Series
--------------------------
<TABLE>
<S> <C>
(1) (2)
Title of Class Number of Record Holders

Shares of Beneficial Interest 47
(without par value) (as of July 25, 1997)

MFS Value Series
---