<PAGE>
[Logo] M F S(R) Semiannual Report
INVESTMENT MANAGEMENT June 30, 1998
- --------------------------------------------------------------------------------
MFS(R) HIGH INCOME SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
- --------------------------------------------------------------------------------
[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) HIGH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and Director, 500 Boylston Street
MFS(R) Investment Management(SM) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGER Boston, MA 02107-9906
Bernard A. Scozzafava*
For additional information,
CHAIRMAN AND PRESIDENT contact your financial adviser.
Jeffrey L. Shames*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly
accepted measures, equity valuations appear to have risen to a point at which
the stock market has become more vulnerable to changes in the investment
environment such as rising inflation and interest rates or a slowing economy.
As a result, while we continue to hold a favorable long-term outlook for the
equity markets, we also believe that a significant market correction is
possible and that such a correction would be a healthy near-term event.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive than
most fixed-income investments, while low inflation helps control companies'
costs, such as for raw materials, wages, and benefits. The near- term outlook
for a continuation of this environment appears relatively favorable. However,
this year has seen a marked slowdown in corporate earnings. This means that as
equity prices continue to rise, price-to-earnings (P/E) ratios, or the amount an
investor pays for a stock in relation to the company's earnings per share, also
go up. A year ago, the average P/E ratio for stocks in the unmanaged Standard &
Poor's 500 Composite Index stood at approximately 22; this summer, the average
P/E ratio was 32% higher, at about 29. In some cases, such as with some of the
newer companies associated with the Internet, P/E ratios have soared to levels
that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 4% to 6% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Given this reality, we believe it is prudent to remind investors of the need
to take a long-term view and to diversify their investments across a range of
asset classes. This includes portfolios that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide
the broadest possible coverage of industry sectors and individual companies,
MFS continues to increase its number of full-time research analysts. These
analysts thoroughly investigate each company's earnings potential and position
in its industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of
credit issuers and companies. They also attend many presentations, closely
follow sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to
both the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS(R) Investment Management(SM)
July 13, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners:
For the six months ended June 30, 1998, the Series provided a total return of
4.67% (including the reinvestment of any distributions). This compares to a
4.50% return for the Lehman Brothers High Yield Bond Index. The high-yield
market is experiencing an unprecedented period of growth and strong
performance and continues to be the best-performing domestic fixed-income
asset class. So far this year, a record $97 billion of high-yield bonds have
been issued by 422 companies, and the market has surpassed $570 billion in
bonds outstanding. Healthy economic growth has contributed to the market's
performance as companies have continued to post improved operating results.
The spread, or difference, between yields on high-yield bonds and U.S.
Treasury notes has widened recently as some global equity investors have
sought the security of the Treasury market following renewed concerns about
economic problems in Asia. (Principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.) As a
result of this flight to quality, the yield on Treasury notes fell slightly,
to 5.4%, while the yield on the Salomon Brothers High-Yield Bond Index, an
unmanaged index of noninvestment-grade U.S. corporate debt, remained at 9.2%.
Given the low level of interest rates, we believe the high-yield market
remains attractively valued, with the spread to Treasuries 3.8%, its widest
level in two-and-a-half years.
While the economic slowdown in Asia could adversely affect the U.S. economy,
we do not think it will materially impact the credit quality of the high-yield
companies owned by the Series. The Series is primarily invested in the bonds
of domestic companies, and when the crisis in Southeast Asia developed last
fall, we reduced our holdings in companies with high exports to that area.
We believe that many high-yield telecommunications issues continue to
represent good value, given their growth opportunities and the higher yields
available in this sector. The telecommunications sector is our largest
industry overweighting and has been one of the best-performing sectors in the
high-yield market over the past 12 months. The Series is also overweighted in
the aerospace sector, in which equipment suppliers such as BE Aerospace are
benefiting from strong orders for new commercial aircraft. Our portfolio is
underweighted in the energy sector, but we will look for investment
opportunities in this area because recently yields have risen in response to
oil prices sinking to their lowest levels in 12 years.
Respectfully,
/s/ Bernard A. Scozzafava
Bernard A. Scozzafava
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Bernard A. Scozzafava is a Vice President -- MFS(R) Investment Management(SM).
He is portfolio manager of the High Yield Series offered through MFS(R)/Sun
Life annuity products and MFS(R) Variable Insurance Trust.
He joined MFS in 1989 as Investment Officer and was named an Assistant Vice
President in 1991, a Vice President in 1993 and portfolio manager of the
annuity series in 1994. Prior to joining MFS he worked as a securities trader
and a research analyst for the Federal Reserve Bank of New York.
Mr. Scozzafava is a graduate of Hamilton College and earned a Master of
Science degree from the Massachusetts Institute of Technology.
SERIES FACTS
Objective: Seeks high current income by investing primarily
in a professionally managed, diversified
portfolio of fixed-income securities, some of
which may involve equity features.
Commencement of
investment operations: July 26, 1995
Size: $40.1 million net assets as of June 30, 1998
PERFORMANCE SUMMARY
Because the Series is designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1998
6 Months 1 Year 10 Years/Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +4.67% +11.34% +39.95%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +11.34% +12.15%
- --------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
July 26, 1995, through June 30, 1998.
All results are historical and assume the reinvestment of dividends and
capital gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Performance results
reflect any applicable expense subsidies and waivers, without which the
results would have been less favorable. Subsidies and waivers may be rescinded
at any time. See the prospectus for details.
Returns shown do not reflect the deduction of the mortality and expense risk
charges and administration fees. Please refer to the annuity product's annual
report for performance that reflects the deduction of the fees and charges
imposed by insurance company separate accounts.
Lower-rated securities may provide greater returns, but they are also
associated with greater-than-average risk. These risks may increase share
price volatility.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus for the product being offered. Please read
it carefully before investing or sending money.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1998
Bonds - 93.7%
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 87.6%
Aerospace - 4.7%
Airplane Pass-Through Trust, 10.875s, 2019 $ 75 $ 84,716
BE Aerospace, Inc., 9.875s, 2006 345 365,700
CHC Helicopter Corp., 11.5s, 2002 103 109,438
K & F Industries, Inc., 9.25s, 2007 220 222,200
L3 Communications Corp., 10.375s, 2007 400 442,000
L3 Communications Corp., 8.5s, 2008## 100 100,375
MOOG, Inc., 10s, 2006 255 272,850
Stellex Industries, Inc., 9.5s, 2007 175 171,938
United Defense Industries, Inc., 8.75s, 2007 100 101,250
-----------
$ 1,870,467
- ------------------------------------------------------------------------------------------------------
Automotive - 2.0%
Hayes Wheels International, Inc., 11s, 2006 $ 100 $ 112,250
Hayes Wheels International, Inc., 9.125s, 2007 225 235,125
Oxford Automotive, Inc., 10.125s, 2007 250 257,500
Talon Automotive Group, Inc., 9.625s, 2008## 100 99,000
Venture Holdings Trust, 9.75s, 2004 100 101,000
-----------
$ 804,875
- ------------------------------------------------------------------------------------------------------
Building - 3.1%
AAF-McQuay, Inc., 8.875s, 2003 $ 275 $ 271,219
Building Materials Corp., 8.625s, 2006 60 61,800
International Utility Structures, Inc., 10.75s, 2008## 160 163,800
Nortek, Inc., 9.875s, 2004 225 232,875
Nortek, Inc., 9.25s, 2007 245 249,900
Williams Scotsman, Inc., 9.875s, 2007 250 260,000
-----------
$ 1,239,594
- ------------------------------------------------------------------------------------------------------
Business Services - 2.1%
Anacomp, Inc., 10.875s, 2004 $ 345 $ 362,250
Iron Mountain, Inc., 10.125s, 2006 175 189,875
Pierce Leahy Corp., 11.125s, 2006 49 54,880
Pierce Leahy Corp., 9.125s, 2007 125 128,125
Zilog, Inc., 9.5s, 2005## 140 99,400
-----------
$ 834,530
- ------------------------------------------------------------------------------------------------------
Chemicals - 1.0%
Acetex, Inc., 9.75s, 2003 $ 165 $ 169,744
PCI Chemicals Canada, Inc., 9.25s, 2007 140 138,600
Sterling Chemicals, Inc., 11.25s, 2007 100 98,000
-----------
$ 406,344
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.4%
Rhythms Netconnections, Inc., 0s to 2003, 13.5s to 2008 $ 150 $ 73,500
Unisys Corp., 12s, 2003 325 368,875
Verio, Inc., 10.375s, 2005## 100 103,000
-----------
$ 545,375
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.3%
Galey & Lord, Inc., 9.125s, 2008 $ 200 $ 192,500
Kindercare Learning Centers, Inc., 9.5s, 2009 180 180,900
Polymer Group, Inc., 9s, 2007 225 228,937
Reeves Industries, Inc., 11s, 2002 29 28,701
Reeves Industries, Inc., 13s, 2004 28 13,972
Remington Products Co. LLC, 11s, 2006 165 151,387
Revlon Consumer Products Corp., 8.625s, 2008## 230 230,000
Samsonite, Inc., 10.75s, 2008## 125 123,750
Synthetic Industries, Inc., 9.25s, 2007 560 579,600
-----------
$ 1,729,747
- ------------------------------------------------------------------------------------------------------
Containers - 2.7%
Atlantis Group, Inc., 11s, 2003 $ 90 $ 94,950
Gaylord Container Corp., 9.75s, 2007 275 270,875
Gaylord Container Corp., 9.875s, 2008## 200 194,000
Graham Packaging Co./GPC Capital, 8.75s, 2008## 100 99,500
Silgan Holdings, Inc., 9s, 2009 175 181,125
U.S. Can Corp., 10.125s, 2006 245 257,862
-----------
$ 1,098,312
- ------------------------------------------------------------------------------------------------------
Energy - 3.6%
Chesapeake Energy Corp., 9.625s, 2005## $ 250 $ 250,625
Clark USA, Inc., 10.875s, 2005 315 346,500
Giant Industries, Inc., 9s, 2007 100 102,500
Gulfmark Offshore, 8.75s, 2008## 150 145,500
P & L Coal Holdings Corp., 9.625s, 2008## 275 282,562
Petsec Energy, Inc., 9.5s, 2007 180 181,800
Pool Energy Services Co., 8.625s, 2008## 150 144,000
-----------
$ 1,453,487
- ------------------------------------------------------------------------------------------------------
Entertainment - 2.3%
Allbritton Communications Co., 9.75s, 2007 $ 375 $ 412,500
AMC Entertainment, Inc., 9.5s, 2009 250 252,500
American Skiing Co., 12s, 2006 25 28,062
Cinemark USA, Inc., 9.625s, 2008 225 231,750
Marvel Holdings, Inc., 0s, 1998** 185 6,938
-----------
$ 931,750
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 2.1%
Delta Beverage Group, Inc., 9.75s, 2003## $ 160 $ 167,600
Friendly Ice Cream Corp., 10.5s, 2007## 165 174,075
Purina Mills, Inc., 9s, 2010## 175 179,813
Specialty Foods Corp., 10.25s, 2001 350 339,500
-----------
$ 860,988
- ------------------------------------------------------------------------------------------------------
Forest and Paper Products - 3.4%
Buckeye Cellulose Corp., 8.5s, 2005 $ 115 $ 116,438
Florida Coast Paper Co. LLC, 12.75s, 2003 300 336,000
Pacific Lumber Co., 10.5s, 2003 75 77,250
Repap New Brunswick, Inc., 9s, 2004## 75 75,375
Repap New Brunswick, Inc., 10.625s, 2005 300 303,000
Speciality Paperboard, Inc., 9.375s, 2006 125 131,250
Uniforet, Inc., 11.125s, 2006 35 33,600
U.S. Timberlands, 9.625s, 2007 280 283,500
-----------
$ 1,356,413
- ------------------------------------------------------------------------------------------------------
Industrial - 2.1%
Argo Tech Corp., 8.625s, 2007## $ 130 $ 131,950
Clark-Schwebel, Inc., 10.5s, 2006 50 55,313
IMO Industries, Inc., 11.75s, 2006 200 225,000
Interlake Corp., 12s, 2001 75 81,750
Interlake Corp., 12.125s, 2002 175 178,500
International Knife & Saw, Inc., 11.375s, 2006 100 107,000
Simonds Industries, Inc., 10.25s, 2008 50 50,000
-----------
$ 829,513
- ------------------------------------------------------------------------------------------------------
Machinery - 2.5%
AGCO Corp., 8.5s, 2006 $ 200 $ 206,000
Columbus Mckinnon Corp., 8.5s, 2008## 185 181,763
Grove Worldwide LLC, 9.25s, 2008## 50 49,000
Newcor, Inc., 9.875s, 2008## 350 353,500
Numatics, Inc., 9.625s, 2008## 200 202,250
-----------
$ 992,513
- ------------------------------------------------------------------------------------------------------
Manufacturing - 0.7%
Furon Co., 8.125s, 2008## $ 135 $ 134,831
Thermadyne Manufacturing, 9.875s, 2008 150 151,125
-----------
$ 285,956
- ------------------------------------------------------------------------------------------------------
Media - 10.4%
Acme Television LLC, 0s to 2000, 10.875s to 2004 $ 150 $ 122,625
Chancellor Media Corp., 8.75s, 2007 200 208,500
Charter Communications Southeast LP, 11.25s, 2006 325 358,312
Cumulus Media, Inc., 10.375s, 2008 40 40,550
EchoStar Communications Corp., 0s to 2000, 13.125s to 2004 335 325,787
EchoStar Satellite Broadcasting Corp., Principal
Stripped, 0s, 2004*## 115 105,656
Fox/Liberty Networks LLC, Inc., 8.875s, 2007 200 204,000
FrontierVision Holding LP, 0s to 2001, 11.87s to 2007 260 205,400
GlobalStar LP/Capital, 11.375s, 2004## 195 189,150
Granite Broadcasting Corp., 10.375s, 2005## 200 210,000
Granite Broadcasting Corp., 8.875s, 2008 150 151,687
Hollinger International Publishing, Inc., 9.25s, 2007 160 168,800
Intermedia Capital Partners IV, LP, 11.25s, 2006 100 111,750
Intermedia Communications, Inc., 0s to 2002, 11.25s to 2007 400 292,000
Liberty Group Operating, Inc., 9.375s, 2008 180 184,500
LIN Holdings Corp., 0s to 2003, 10s to 2008## 325 217,750
NTL, Inc., 0s to 2003, 9.75s to 2008## 300 195,000
Outdoor Systems, Inc., 8.875s, 2007 125 130,156
Renaissance Media Louisiana LLC, 0s to 2003, 10s to 2008## 75 44,250
Rodgers Cablesystems, Inc., 10.125s, 2012 300 326,250
United International Holdings, Inc., 0s to 2003,
10.75s to 2008## 610 376,675
-----------
$ 4,168,798
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.6%
Beverly Enterprises, Inc., 9s, 2006 $ 150 $ 156,375
Fresenius Medical Care Capital Trust, 7.875s, 2008## 200 196,500
Insight Health Services Corp., 9.625s, 2008## 75 74,531
Mediq, Inc., 11s, 2008## 125 128,125
Oxford Health Plans, Inc., 11s, 2005## 75 76,219
Pharmerica, Inc., 8.375s, 2008## 100 100,250
Physician Sales & Service, Inc., 8.5s, 2007## 140 143,850
Prime Medical Services, Inc., 8.75s, 2008## 175 173,250
-----------
$ 1,049,100
- ------------------------------------------------------------------------------------------------------
Metals and Minerals - 6.0%
Commonwealth Aluminum Corp., 10.75s, 2006 $ 225 $ 231,750
Doe Run Resources Corp., 11.25s, 2005## 200 202,000
Haynes International, Inc., 11.625s, 2004 300 337,500
Johnstown America Industries, Inc., 11.75s, 2005 500 553,750
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 375 403,125
Keystone Consolidated Industries, Inc., 9.625s, 2007 230 236,325
Metal Management, Inc., 10s, 2008## 100 98,250
Metals USA, Inc., 8.625s, 2008## 175 169,750
Wheeling Pittsburgh Corp., 9.25s, 2007 70 71,400
WHX Corp., 10.5s, 2005 100 100,250
-----------
$ 2,404,100
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.1%
Big Flower Press Holdings, Inc., 8.875s, 2007## $ 100 $ 101,750
Day International Group, Inc., 11.125s, 2005 50 54,500
General Binding Corp., 9.375s, 2008## 125 126,875
Golden Books Publishing, Inc., 7.65s, 2002 75 58,500
Transwestern Publishing Co., 9.625s, 2007## 85 86,913
-----------
$ 428,538
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 4.8%
Boyd Gaming Corp., 9.5s, 2007 $ 435 $ 452,400
Casino America, Inc., 12.5s, 2003 150 169,500
Coast Hotels & Casinos, Inc., 13s, 2002 155 179,412
Eldorado Resorts LLC, 10.5s, 2006 100 110,000
Grand Casinos, Inc., 10.125s, 2003 350 381,500
Planet Hollywood, 12s, 2005 125 112,500
Prime Hospitality Corp., 9.75s, 2007 150 159,375
Red Roof Inns, Inc., 9.625s, 2003 305 314,150
Santa Fe Hotel, Inc., 11s, 2000 65 64,350
-----------
$ 1,943,187
- ------------------------------------------------------------------------------------------------------
Retail - 1.8%
Cole National Group, Inc., 8.625s, 2007 $ 350 $ 353,500
Finlay Enterprises, Inc., 9s, 2008 100 100,500
Finlay Fine Jewelry Corp., 8.375s, 2008 75 75,375
Musicland Group, Inc., 9.875s, 2008 200 199,000
-----------
$ 728,375
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 1.0%
Boyds Collection Ltd., 9s, 2008## $ 275 $ 275,000
Thermadyne Holdings, 0s to 2003, 12.5s to 2008## 250 138,750
-----------
$ 413,750
- ------------------------------------------------------------------------------------------------------
Steel - 2.2%
Alaska Steel Holdings Corp., 9.125s, 2006 $ 160 $ 167,200
GS Technologies Operating, Inc., 12.25s, 2005 100 114,000
Schuff Steel Co., 10.5s, 2008## 175 174,125
UCAR Global Enterprises, Inc., 12s, 2005 100 108,750
WCI Steel, Inc., 10s, 2004 300 308,250
-----------
$ 872,325
- ------------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
Jitney-Jungle Stores of America, Inc., 12s, 2006 $ 125 $ 140,625
- ------------------------------------------------------------------------------------------------------
Telecommunications - 19.0%
Allegiance Telecom, Inc., 0s to 2003, 11.75s to 2008## $ 200 $ 106,500
American Cellular Corp., 10.5s, 2008## 150 150,000
American Mobile Satellite Corp., 12.25s, 2008## 160 148,800
Clearnet Communications, Inc., 0s to 2000, 14.75s to 2005 175 146,125
Crown Castle International Corp., 0s to 2002, 10.625s to 2007 375 255,938
CSC Holdings, Inc., 9.25s, 2005 250 267,500
Esat Holdings Ltd., 0s to 2002, 12.5s to 2007 500 367,500
Esprit Telecom Group PLC, 10.875s, 2008## 200 198,000
Exodus Communications, Inc., 11.25s, 2008## 300 301,125
Flag Ltd., 8.25s, 2008## 225 226,688
GCI, Inc., 9.75s, 2007 300 313,500
Global Crossing Holdings Ltd., 9.625s, 2008## 225 234,563
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 475 377,625
ITC Deltacom, Inc., 11s, 2007 81 90,720
Lenfest Communications, Inc., 10.5s, 2006 175 203,875
Level 3 Commerce, Inc., 9.125s, 2008## 325 316,062
McCaw International Ltd., 0s to 2002, 13s to 2007 175 115,938
Metronet Communications Corp., 0s to 2002, 10.75s to 2007## 820 522,175
MJD Communications, Inc., 9.5s, 2008## 100 102,250
Mobile Telecommunication Technologies Corp., 13.5s, 2002 135 154,575
Nextel Communications, Inc., 0s to 2002, 9.75s to 2007 585 496,912
Nextel International, Inc., 0s to 2003, 12.125s to 2008## 485 278,875
Nextlink Communications, Inc., 9.625s, 2007 100 102,000
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 325 195,000
Pathnet, Inc., 12.25s, 2008## 150 159,000
Pinnacle Holdings, Inc., 0s to 2003, 10s to 2008## 215 140,825
Psinet, Inc., 10s, 2005 175 178,500
Qwest Communications International, Inc., 0s to 2002,
9.47s to 2007 250 187,500
RCN Corp., 0s to 2002, 11.25s to 2007 475 305,188
Rural Cellular Corp., 9.625s, 2008## 100 100,000
Spectrasite Holdings, Inc., 0s to 2003, 12s to 2008 300 166,500
Telesystem International Wireless, Inc., 0s to 2002,
10.5s to 2007## 150 90,187
Telesystem International Wireless, Inc., 0s to 2002,
13.25s to 2007 325 216,125
Triton PCS, Inc., 0s to 2003, 11s to 2008## 300 175,500
Western Wireless Corp., 10.5s, 2007 200 215,000
-----------
$ 7,606,571
- ------------------------------------------------------------------------------------------------------
Transportation - 0.1%
Moran Transportation Co., 11.75s, 2004 $ 50 $ 55,625
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.2%
El Paso Electric Co., 8.9s, 2006 $ 75 $ 84,599
- ------------------------------------------------------------------------------------------------------
Total U.S. Bonds $35,135,457
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 6.1%
Greece - 0.2%
Fage Dairy Industries SA, 9s, 2007 (Consumer Goods and
Services) $ 75 $ 72,938
- ------------------------------------------------------------------------------------------------------
Luxembourg - 0.7%
Millicom International Cellular Communications Corp.,
0s to 2001, 13.5s to 2006 (Telecommunications) $ 380 $ 296,400
- ------------------------------------------------------------------------------------------------------
Mexico - 0.4%
Satelites Mexicanos S A De C V, 10.125s, 2004
(Telecommunications)## $ 175 $ 171,062
- ------------------------------------------------------------------------------------------------------
Netherlands - 0.3%
Ptc International Finance BV, 0s to 2002, 10.75s to
2007 (Financial Services) $ 175 $ 119,000
- ------------------------------------------------------------------------------------------------------
Russia - 0.4%
Ministry of Finance, Russia, 10s, 2007 $ 140 $ 105,000
Ministry of Finance, Russia, 12.75s, 2028## 60 53,700
-----------
$ 158,700
- ------------------------------------------------------------------------------------------------------
South Korea - 0.3%
Republic of Korea, 8.875s, 2008 $ 125 $ 113,056
- ------------------------------------------------------------------------------------------------------
United Kingdom - 3.8%
Colt Telecom Group PLC, 0s to 2006, 12s to 2006
(Telecommunications) $ 225 $ 177,750
Colt Telecommunications Group PLC, 0s to 2001, 12s to
2006 (Telecommunications) 135 135,000
Dialog Corporation PLC, 11s, 2007 (Media) 325 359,125
Diamond Cable Communications Corp. PLC, 0s to 2000,
11.75s to 2005 (Telecommunications) 10 8,300
Dolphin Telecom PLC, 0s to 2003, 11.5s to 2008
(Telecommunications)## 325 183,625
HMV Media Group PLC, 10.25s, 2008 (Media)## 235 238,525
Middleweb PLC Bankers Trust Lux, 10.5s, 2008 (Banks
and Credit Companies)## GBP 100 166,383
Newsquest Capital PLC, 11s, 2006 (Printing and
Publishing) $ 15 16,950
Telewest PLC, 9.625s, 2006 (Telecommunications) 225 237,375
-----------
$ 1,523,033
- ------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 2,454,189
- ------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $37,143,925) $37,589,646
- ------------------------------------------------------------------------------------------------------
Preferred Stock - 3.5%
- ------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services
Renaissance Cosmetics, Inc., 14s# 149 $ 1,490
- ------------------------------------------------------------------------------------------------------
Entertainment - 1.2%
Time Warner, Inc., 10.25s 447 $ 500,640
- ------------------------------------------------------------------------------------------------------
Media - 0.8%
Primedia, Inc., 8.625s 1,650 $ 160,050
Primedia, Inc., 10s 1,500 153,000
-----------
$ 313,050
- ------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Supermarkets General Holdings Corp., $3.52 Exch., 2007# 1,500 $ 46,125
- ------------------------------------------------------------------------------------------------------
Telecommunications - 1.4%
CSC Holdings, Inc., 11.125s 3,139 $ 355,492
Rural Cellular Corp., 11.375s## 200 201,000
-----------
$ 556,492
- ------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $1,353,270) $ 1,417,797
- ------------------------------------------------------------------------------------------------------
Warrants - 0.1%
- ------------------------------------------------------------------------------------------------------
Allegiance Telecom, Inc. (Telecommunications)* 200 $ 50
Esat Holdings Ltd. (Telecommunications)*## 500 17,500
GlobalStar Telecommunications (Telecommunications)##* 195 21,450
McCaw International Ltd. (Telecommunications)*## 175 219
Orion Network Systems, Inc. (Telecommunications)* 100 1,000
Orion Network Systems, Inc. (Telecommunications)* 200 4,000
Renaissance Cosmetics, Inc. (Consumer Goods and Services)* 129 1
- ------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $26,601) $ 44,220
- ------------------------------------------------------------------------------------------------------
Commercial Paper - 2.5%
- ------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/98, at amortized cost $1,000 $ 1,000,000
- ------------------------------------------------------------------------------------------------------
Bond Unit - 1.2%
- ------------------------------------------------------------------------------------------------------
Telecommunications - 1.2%
Digital Teleport Holdings, Inc., 0s to 2003, 12.5s to 2008## $ 250 $ 135,000
Versatel Telecom B V, 13.25s, 2008## 100 105,000
Viatel, Inc., 0s, 2008## 150 90,750
Viatel, Inc., 11.25s, 2008## 135 141,750
- ------------------------------------------------------------------------------------------------------
Total Bond Unit (Identified Cost, $474,659) $ 472,500
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $39,998,455) $40,524,163
Other Assets, Less Liabilities - (1.0)% (419,272)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $40,104,891
- ------------------------------------------------------------------------------------------------------
*Non-income producing security.
**Non-income producing security - in default.
#Payment-in-kind security.
##SEC Rule 144A restriction.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
GBP = British Pounds
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $39,998,455) $40,524,163
Cash 6,300
Receivable for Series shares sold 112,303
Receivable for investments sold 50,750
Interest receivable 706,295
Deferred organization expenses 3,808
Other assets 197
-----------
Total assets $41,403,816
-----------
Liabilities:
Payable for Series shares reacquired $ 852,672
Payable for investments purchased 440,000
Payable to affiliate for management fee 2,511
Accrued expenses and other liabilities 3,742
-----------
Total liabilities $ 1,298,925
-----------
Net assets $40,104,891
===========
Net assets consist of:
Paid-in capital $37,766,476
Unrealized appreciation on investments 525,708
Accumulated undistributed net realized gain on investments 313,296
Accumulated undistributed net investment income 1,499,411
-----------
Total $40,104,891
===========
Shares of beneficial interest outstanding 3,315,850
=========
Net assset value per share
(net assets of $40,104,891 / 3,315,850 shares of beneficial
interest outstanding) $12.09
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $1,633,808
Dividends 50,528
----------
Total investment income $1,684,336
----------
Expenses -
Management fee $ 134,721
Trustees' compensation 1,017
Shareholder servicing agent fee 6,169
Administrative fee 2,651
Custodian fee 7,214
Printing 10,769
Auditing fees 2,900
Legal fees 648
Amortization of organization expenses 911
Miscellaneous 5,442
----------
Total expenses $ 172,442
Fees paid indirectly (6,568)
Preliminary reimbursement of expenses by investment adviser 13,754
----------
Net expenses $ 179,628
----------
Net investment income $1,504,708
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) on investment
transactions $ 317,468
Change in unrealized appreciation on investments (220,837)
----------
Net realized and unrealized gain on investments $ 96,631
----------
Increase in net assets from operations $1,601,339
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,504,708 $ 1,832,060
Net realized gain on investments 317,468 626,112
Net unrealized gain (loss) on investments (220,837) 469,575
----------- -----------
Increase in net assets from operations $ 1,601,339 $ 2,927,747
----------- -----------
Distributions declared to shareholders -
From net investment income $(1,834,168) $ --
From net realized gain on investments (629,079) --
----------- -----------
Total distributions declared to shareholders $(2,463,247) $ --
----------- -----------
Net increase in net assets from Series share transactions $10,305,233 $14,739,696
----------- -----------
Total increase in net assets $ 9,443,325 $17,667,443
Net assets:
At beginning of period 30,661,566 12,994,123
----------- -----------
At end of period (including accumulated undistributed net
investment income of $1,499,411 and $1,828,871,
respectively) $40,104,891 $30,661,566
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
Period Ended ----------------------- Period Ended
June 30, 1998 1997 1996 December 31, 1995*
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $12.34 $10.87 $10.29 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.53 $ 0.95 $ 0.89 $ 0.34
Net realized and unrealized gain on investments 0.05 0.52 0.32 0.18
------ ------ ------ ------
Total from investment operations $ 0.58 $ 1.47 $ 1.21 $ 0.52
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.62) $ -- $(0.53) $(0.23)
From net realized gain on investments (0.21) -- (0.10) --
------ ------ ------ ------
Total distributions declared to shareholders $(0.83) $ -- $(0.63) $(0.23)
------ ------ ------ ------
Net asset value - end of period $12.09 $12.34 $10.87 $10.29
====== ====== ====== ======
Total return 4.67%++ 13.52% 11.80% 5.25%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00%+ 1.00% 1.00% 1.00%+
Net investment income 8.34%+ 8.17% 8.18% 8.17%+
Portfolio turnover 77% 139% 135% 32%
Net assets at end of period (000 omitted) $40,105 $30,662 $12,994 $1,946
*For the period from the commencement of the Series' investment operations, July 26, 1995, through
December 31, 1995.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Series' expenses are calculated without reduction for fees paid indirectly.
(S)Subject to reimbursement by the Series, the investment 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/under this limitation, the net investment income per share and the ratios would
have been:
Net investment income $ 0.53 $ 0.93 $ 0.82 $ 0.20
Ratios (to average net assets):
Expenses## 0.96%+ 1.15% 1.62% 4.38%+
Net investment income 8.38%+ 8.02% 7.56% 4.82%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS High Income Series (the Series) is a diversified series of MFS(R) Variable
Insurance Trust (the Trust) which is composed of the following 13 series
MFS(R) Bond Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial
Emerging Markets Equity Series, MFS(R) Growth with Income Series, MFS High
Income Series, MFS(R) Limited Maturity Series, MFS(R) Money Market Series,
MFS(R) New Discovery Series, MFS(R) Research Series, MFS(R) Total Return
Series, MFS(R) Utilities Series, MFS(R) Value Series, and MFS(R) World
Governments Series. The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
The shareholders of each Series of the Trust are separate accounts of insurance
companies which offer variable annuity and/or life insurance products. As of
June 30, 1998, there were 13 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of local currencies and the U.S. dollar and to the effects
of changes in each countries legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, are valued on the
basis of valuations furnished by dealers or by a pricing service with
consideration to factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Short-term obligations, which mature in
60 days or less, are valued at amortized cost, which approximates market
value. Equity securities listed on securities exchanges or reported through
the NASDAQ system are reported at market value using last sale prices.
Unlisted equity securities or listed equity securities for which last sale
prices are not available are reported at market value using last quoted bid
prices. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on
such date.
The Series uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds. Legal fees and other related expenses incurred to
preserve and protect the value of a security owned are added to the cost of
the security; other legal fees are expensed. Capital infusions, which are
generally non-recurring, incurred to protect or enhance the value of high-
yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage
of the Series' month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Series. This amount is shown as a reduction of expenses on the Statement
of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Series' tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
Capital gains taxes have been provided on unrealized and realized gains from
securities transactions in countries where such a capital gains tax is
applicable. Realized and unrealized gain is reported net of any capital gains
tax in the Statement of Operations.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
of average daily net assets. The Series has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Series'
operating expenses, exclusive of management fees. The Series in turn will pay
MFS an expense reimbursement fee not greater than 0.25% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the Series'
actual expenses, the excess will be applied to amounts paid by MFS in prior
years. At June 30, 1998, the aggregate unreimbursed expenses owed to MFS by
the Series amounted to $80,295.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS
to provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative
fee at the following annual percentages of the Series' average daily net
assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $36,505,766 and $26,517,412,
respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $39,998,455
===========
Gross unrealized appreciation $ 1,110,626
Gross unrealized depreciation (584,918)
-----------
Net unrealized appreciation $ 525,708
===========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Series shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Year Ended December 31, 1997
------------------------------ ------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,766,947 $ 22,001,162 2,948,827 $ 34,268,303
Shares issued to shareholders in
reinvestment of distributions 204,758 2,463,243 -- --
Shares reacquired (1,140,643) (14,159,172) (1,659,364) (19,528,607)
---------- ------------- ---------- -------------
Net increase 831,062 $ 10,305,233 1,289,463 $ 14,739,696
========== ============= ========== =============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in a $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Series for the period ended June 30, 1998, was $44.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VHI-3 8/98 13.55M
