<PAGE>
[logo] MFS(SM) Annual Report
INVESTMENT MANAGEMENT for Year Ended
December 31, 1997
- -------------------------------------------------------------------------------
MFS(R) HIGH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
- -------------------------------------------------------------------------------
[graphic omitted]
<PAGE>
MFS(R) HIGH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST (SM)
<TABLE>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Nelson J. Darling, Jr. Massachusetts Financial Services Company
Trustee, Eastern Enterprises 500 Boylston Street
(diversified holding company) Boston, MA 02116-3741
William R. Gutow DISTRIBUTOR
Vice Chairman, MFS Fund Distributors, Inc.
Capitol Entertainment Management Company 500 Boylston Street
(Blockbuster Video franchise) Boston, MA 02116-3741
PORTFOLIO MANAGER INVESTOR SERVICE
Bernard A. Scozzafava* MFS Service Center, Inc.
P.O. Box 2281
TREASURER Boston, MA 02107-9906
W. Thomas London*
For additional information,
ASSISTANT TREASURERS contact your financial adviser.
Mark E. Bradley*
Ellen Moynihan* CUSTODIAN
James O. Yost* State Street Bank and Trust Company
SECRETARY AUDITORS
Stephen E. Cavan* Deloitte & Touche LLP
ASSISTANT SECRETARY WORLD WIDE WEB
James R. Bordewick, Jr.* www.mfs.com
</TABLE>
[Dalbar logo] For the fourth year in a row, MFS earned a #1 ranking in the
DALBAR, Inc. Broker/Dealer Survey, Main Office Operations Service Quality
Category. The firm achieved a 3.42 overall score on a scale of 1 to 4 in the
1997 survey. A total of 111 firms responded, offering input on the quality of
service they received from 29 mutual fund companies nationwide. The survey
contained questions about service quality in 11 categories, including "knowledge
of operations contact," "keeping you informed," and "ease of doing business"
with the firm.
*Affiliated with the Investment Adviser
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
MFS Mourns Chairman's Passing
It is with deep regret that we inform you of the death on February 2, 1998,
of A. Keith Brodkin, Chairman and Chief Executive Officer of MFS
Investment Management(SM). Mr. Brodkin joined MFS in 1970 and made
enormous contributions to the organization, including helping to build the
firm's investment staff, which will continue to manage all of the MFS
investment portfolios. His leadership, friendship, and wise counsel will
be sorely missed.
Dear Contract Owners:
Thanks to a sustained period of relative stability and moderate growth, the U.S.
economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been favorable.
The increased use of technology and other productivity enhancements, as well as
corporate restructuring and global competition, is improving companies' balance
sheets and helping control inflation. The rapid pace of growth seen in the first
quarter slowed to an annual rate of 3.3% in the second quarter and 3.5% in the
third. We believe this economic momentum will carry well into the first quarter
of 1998 as a result of lower interest rates and continuing growth in the money
supply. While economic growth in the United States continues to be impressive,
this is partially being offset by events in the Pacific Rim. Thus, markets will
most likely continue to focus on activity by the Federal Reserve Board (the Fed)
and its response to both U.S. and world events.
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under severe
pressure. Inflation remains under control, and the Fed will most likely take a
wait-and-see attitude toward raising interest rates. As a result, our near- term
outlook for high-grade markets is neutral to moderately positive. At the same
time, high-yield markets, having gone through a substantial correction, could
offer reasonable value but require careful selection. Overall, fixed- income
markets appear to be reasonably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
President, MFS Investment Management
January 12, 1998
<PAGE>
MFS HIGH INCOME SERIES
For the year ended December 31, 1997, the Series provided a total return of
13.52% (including the reinvestment of any distributions). This compares to a
12.76% return for the Lehman Brothers High Yield Bond Index, an unmanaged index
of publicly issued, noninvestment-grade debt, and to a 12.91% return for the
Lipper High Yield Bond Fund Index as measured by Lipper Analytical Services,
Inc., an independent firm that reports mutual fund performance. The Series'
largest weighting was in the telecommunications industry, which posted the best
returns in the high-yield market. In this industry, we have focused on the bonds
of competitive local exchange carriers (CLECs), which offer an array of
telephone services and compete primarily with the Baby Bells for business
customers. We favored this sector because we believe deregulation provides CLECs
with many growth opportunities. In addition, these companies have experienced
strong customer demand because their new fiber optic networks offer reliable
low-cost service. The Series also benefited from consolidation in the
telecommunications sector because some of its holdings, including Brooks Fiber
and Orion Network Systems, were acquired by investment-grade companies.
Emerging-market corporate and sovereign bond prices have weakened in response to
the Asian currency crisis. The Series benefited from an underweighting in this
sector. In addition, we have reduced positions in domestic companies with
significant export exposure to Asia. While we will look for investment
opportunities in this area as bond prices decline, we do not expect this sector
to be a significant component of the portfolio.
Given the high-yield market's strength over the past year, the Series'
performance was hindered by its overweighted position in defensive industries
such as consumer products. Going forward, we will continue to favor higher-
quality companies and avoid more speculative situations, given our outlook for
slower economic growth resulting from Asia's economic problems.
The past year was a robust one for the high-yield market. High-yield bonds were
once again one of the best-performing fixed-income asset classes, and new
issuance hit a record $119 billion, surpassing the previous record by $47
billion. The domestic economy continues to exhibit sound fundamentals and,
therefore, we expect the high-yield market's healthy performance to carry
through into 1998. As always, our investment process will be committed to
developing rewarding ideas through rigorous credit research.
Respectfully,
/s/ Bernard A. Scozzafava
Bernard A. Scozzafava
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
Bernard A. Scozzafava joined MFS in 1989 as Investment Officer and was named
Assistant Vice President in 1991 and Vice President in 1993. A graduate of
Hamilton College, he holds an M.S. degree from the Massachusetts Institute of
Technology and has managed MFS High Income Series since June 1997.
OBJECTIVE AND POLICIES
The Series' investment objective is to seek 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
PERFORMANCE SUMMARY
The information below illustrates the performance of MFS High Income Series -
VIT shares in comparison to various market indicators. Benchmark comparisons are
unmanaged and do not reflect any fees or expenses. It is not possible to invest
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from August 1, 1995, through December 31, 1997)
MFS High Income Lipper High Yield Consumer Price Lehman Brothers
Series - VIT Bond Fund Index Index - U.S. High Yield Bond Index
- -------------------------------------------------------------------------------
8/95 $10,000 $10,000 $10,000 $10,000
12/95 10,525 10,417 10,059 10,470
12/96 11,767 11,736 10,400 11,660
12/97 13,369 13,252 10,623 13,146
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
- -------------------------------------------------------------------------------
MFS High Income Series +13.52% +12.66%
- -------------------------------------------------------------------------------
Lipper High Yield Bond Fund Index** +12.91% +12.36%
- -------------------------------------------------------------------------------
Lehman Brothers High Yield Bond Index** +12.76% +11.98%
- -------------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.51%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
July 26, 1995, through December 31, 1997.
** Source: Lipper Analytical Services, Inc.
# Source: CDA/Wiesenberger.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
All results are historical and, therefore, are not an indication of future
results. The investment return and principal value of an investment in the
product will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost.
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.
All results reflect any applicable expense subsidies and waivers, without which
the performance results would have been less favorable. Subsidies and waivers
may be rescinded at any time.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1997
Bonds - 90.8%
- ------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------
U.S. Bonds - 80.9%
Aerospace - 2.2%
Airplane Pass-Through Trust, 10.875s, 2019 $ 75 $ 84,377
BE Aerospace, Inc., 9.875s, 2006 170 179,350
K & F Industries, Inc., 9.25s, 2007## 120 123,000
MOOG, Inc., 10s, 2006 255 280,500
------------
$ 667,227
- ------------------------------------------------------------------------------
Automotive - 3.4%
Delco Remy International, Inc., 8.625s, 2007 $125 $ 126,406
Exide Corp., 10s, 2005 75 79,500
Hayes Wheels International, Inc., 11s, 2006 100 111,500
Hayes Wheels International, Inc., 9.125s, 2007 225 232,875
Mark IV Industries, Inc., 7.5s, 2007 150 148,755
Oxford Automotive, Inc., 10.125s, 2007 250 261,875
Venture Holdings Trust, 9.75s, 2004 100 99,500
------------
$ 1,060,411
- ------------------------------------------------------------------------------
Building - 3.7%
AAF-McQuay, Inc., 8.875s, 2003 $275 $ 272,594
Building Materials Corp., 8.625s, 2006 60 61,950
Building Materials Corp., 8s, 2007## 225 220,500
Johns Manville International Group, Inc.,
10.875s, 2004 50 55,500
Nortek, Inc., 9.875s, 2004 25 25,563
Nortek, Inc., 9.25s, 2007 245 248,062
Williams Scotsman, Inc., 9.875s, 2007 250 257,500
------------
$ 1,141,669
- ------------------------------------------------------------------------------
Business Services - 1.7%
Iron Mountain, Inc., 10.125s, 2006 $300 $ 330,000
Pierce Leahy Corp., 11.125s, 2006 49 55,370
Pierce Leahy Corp., 9.125s, 2007 125 130,000
------------
$ 515,370
- ------------------------------------------------------------------------------
Chemicals - 1.4%
Harris Chemical North America, Inc., 10.25s, 2001 $125 $ 131,250
NL Industries, Inc., 11.75s, 2003 175 193,375
Sterling Chemicals, Inc., 11.25s, 2007 100 100,000
------------
$ 424,625
- ------------------------------------------------------------------------------
Computer Software - Systems - 0.1%
Anacomp, Inc., 10.875s, 2004 $ 20 $ 20,500
- ------------------------------------------------------------------------------
Consumer Goods and Services - 4.5%
Chiquita Brands International Inc., 9.125s, 2004 $135 $ 140,400
E & S Holdings Corp., 10.375s, 2006 250 227,500
Kindercare Learning Centers, Inc., 9.5s, 2009 80 79,600
Remington Products Co. LLC, 11s, 2006 40 33,700
Synthetic Industries, Inc., 9.25s, 2007 560 588,000
Westpoint Stevens, Inc., 9.375s, 2005 300 315,000
------------
$ 1,384,200
- ------------------------------------------------------------------------------
Containers - 2.8%
Atlantis Group, Inc., 11s, 2003 $ 90 $ 91,350
Calmar, Inc., 11.5s, 2005 100 106,000
Gaylord Container Corp., 9.75s, 2007 275 265,375
Silgan Holdings, Inc., 9s, 2009 375 383,437
------------
$ 846,162
- ------------------------------------------------------------------------------
Defense Electronics - 1.0%
United Defense Industries, Inc., 8.75s, 2007## $300 $ 301,875
- ------------------------------------------------------------------------------
Electronics - 0.2%
Clark-Schwebel, Inc., 10.5s, 2006 $ 50 $ 54,500
- ------------------------------------------------------------------------------
Entertainment - 3.3%
Albritton Communications Co., 9.75s, 2007 $375 $ 383,437
AMC Entertainment, Inc., 9.5s, 2009 250 256,250
American Skiing Co., 12s, 2006 25 27,750
Cinemark USA, Inc., 9.625s, 2008 225 232,313
Marvel Holdings, Inc., 0s, 1998** 185 7,400
Plitt Theatres, Inc., 10.875s, 2004 100 108,125
------------
$ 1,015,275
- ------------------------------------------------------------------------------
Food and Beverage Products - 2.0%
Delta Beverage Group, Inc., 9.75s, 2003## $310 $ 327,050
Friendly Ice Cream Corp., 10.5s, 2007## 165 166,650
Keebler Corp., 10.75s, 2006 100 112,750
------------
$ 606,450
- ------------------------------------------------------------------------------
Forest and Paper Products - 3.7%
Florida Coast Paper Co. LLC, 12.75s, 2003 $100 $ 106,000
Pacific Lumber Co., 10.5s, 2003 75 77,625
Speciality Paperboard, Inc., 9.375s, 2006 125 129,688
U.S. Can Corp., 10.125s, 2006 495 523,462
U.S. Timberlands, 9.625s, 2007 280 291,200
------------
$ 1,127,975
- ------------------------------------------------------------------------------
Industrial - 0.9%
Argo Tech Corp., 8.625s, 2007## $280 $ 279,300
- ------------------------------------------------------------------------------
Information, Paging and Technology - 5.3%
GlobalStar LP/Capital, 11.375s, 2004 $195 $ 196,463
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 475 358,625
McCaw International Ltd., 0s to 2002, 13s to 2007 175 101,500
NEXTEL Communications, Inc., 0s to 1999, 9.75s to 2004 360 320,400
NEXTEL Communications, Inc., 0s to 2002, 9.75s
to 2007## 225 138,094
Orion Network Systems, Inc., 11.25s, 2007 100 113,375
Orion Network Systems, Inc., 0s to 2002, 12.5s to 2007 200 144,000
Qwest Communications International, Inc., 0s to 2002,
9.47s to 2007## 250 170,625
Qwest Communications International, Inc.,
10.875s, 2007 75 85,312
------------
$ 1,628,394
- ------------------------------------------------------------------------------
Machinery - 0.2%
AGCO Corp., 8.5s, 2006 $ 50 $ 51,125
- ------------------------------------------------------------------------------
Media - 1.9%
Cablevision Systems Corp., 9.25s, 2005 $175 $ 185,500
Intermedia Capital Partners IV, LP, 11.25s, 2006 100 110,500
Intermedia Communications, Inc., 0s to 2002, 11.25s to
2007 200 145,500
Outdoor Systems, Inc., 8.875s, 2007 125 130,625
------------
$ 572,125
- ------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.7%
Beverly Enterprises, Inc., 9s, 2006 $300 $ 310,125
Physician Sales & Service, Inc., 8.5s, 2007## 140 143,850
Quorum Health Group, Inc., 8.75s, 2005 100 103,250
Tenet Healthcare Corp., 8.625s, 2007 150 154,875
Vencor, Inc., 8.625s, 2007 125 124,687
------------
$ 836,787
- ------------------------------------------------------------------------------
Metals and Minerals - 2.4%
Haynes International, Inc., 11.625s, 2004 $300 $ 342,000
Kaiser Aluminum & Chemical Corp., 10.875s, 2006 375 406,875
------------
$ 748,875
- ------------------------------------------------------------------------------
Oil Services - 2.2%
Clark USA, Inc., 10.875s, 2005 $315 $ 342,956
Cross Timbers Oil Co., 8.75s, 2009 335 341,700
------------
$ 684,656
- ------------------------------------------------------------------------------
Oils - 0.3%
Giant Industries, Inc., 9s, 2007## $100 $ 99,250
- ------------------------------------------------------------------------------
Printing and Publishing - 1.0%
Big Flower Press Holdings, Inc., 8.875s, 2007## $100 $ 100,750
Day International Group, Inc., 11.125s, 2005 50 55,000
Golden Books Publishing, Inc., 7.65s, 2002 75 71,250
Transwestern Publishing Co. LP, 9.625s, 2007## 85 88,400
------------
$ 315,400
- ------------------------------------------------------------------------------
Restaurants and Lodging - 5.4%
Boyd Gaming Corp., 9.5s, 2007 $375 $ 392,812
Casino America, Inc., 12.5s, 2003 150 162,750
Coast Hotels & Casinos, Inc., 13s, 2002 155 175,150
Eldorado Resorts LLC, 10.5s, 2006 100 109,000
Grand Casinos, Inc., 10.125s, 2003 350 378,000
Harveys Casinos Resorts, 10.625s, 2006 75 81,469
Red Roof Inns, Inc., 9.625s, 2003 305 315,675
Santa Fe Hotel, Inc., 11s, 2000 65 57,688
------------
$ 1,672,544
- ------------------------------------------------------------------------------
Retail - 1.6%
Finlay Fine Jewelry Corp., 10.625s, 2003 $250 $ 262,500
Parisian, Inc., 9.875s, 2003 213 227,910
------------
$ 490,410
- ------------------------------------------------------------------------------
Special Products and Services - 4.4%
Buckeye Cellulose Corp., 8.5s, 2005 $190 $ 194,275
Idex Corp., 9.75s, 2002 25 25,938
IMO Industries, Inc., 11.75s, 2006 200 221,000
Interlake Corp., 12s, 2001 75 82,125
Interlake Corp., 12.125s, 2002 175 183,750
International Knife & Saw, Inc., 11.375s, 2006 100 108,250
Polymer Group, Inc., 9s, 2007 475 473,812
Reeves Industries, Inc., 11s, 2002** 50 37,125
Thermadyne Industries Holdings Corp., 10.75s, 2003 26 27,430
------------
$ 1,353,705
- ------------------------------------------------------------------------------
Steel - 3.8%
Alaska Steel Holdings Corp., 9.125s, 2006 $225 $ 230,062
Armco, Inc., 9s, 2007 70 68,600
Commonwealth Aluminum Corp., 10.75s, 2006 375 405,000
GS Technologies Operating, Inc., 12.25s, 2005 100 112,000
Keystone Consolidated Industries, Inc., 9.625s, 2007## 130 132,600
Republic Engineered Steels, Inc., 9.875s, 2001 215 204,250
------------
$ 1,152,512
- ------------------------------------------------------------------------------
Stores - 0.3%
Cole National Group, Inc., 8.625s, 2007## $100 $ 100,000
- ------------------------------------------------------------------------------
Supermarkets - 2.3%
Jitney-Jungle Stores of America, Inc., 12s, 2006 $125 $ 141,875
Marsh Supermarkets, Inc., 8.875s, 2007 160 160,800
Pathmark Stores, Inc., 9.625s, 2003 110 101,200
Ralph's Grocery Co., 10.45s, 2004 175 197,750
Shoppers Food Warehouse Corp., 9.75s, 2004## 100 102,000
------------
$ 703,625
- ------------------------------------------------------------------------------
Telecommunications - 15.7%
Acme Television LLC, 0s to 2000, 10.875s to 2004## $150 $ 109,875
Brooks Fiber Properties, Inc., 0s to 2001, 10.875s
to 2006 50 41,500
Chancellor Media Corp., 8.75s, 2007 450 457,875
Charter Communications Southeast LP, 11.25s, 2006 90 99,000
Crown Castle International Corp., 0s to 2002, 10.625s
to 2007## 375 235,312
EchoStar Communications Corp., Principal Stripped,
0s, 2004 335 306,525
EchoStar Satellite Broadcasting Corp., 0s to 2000,
13.125s to 2004 115 95,450
Esat Holdings Ltd., 0s to 2002, 12.5s to 2007 500 355,000
Fox/Liberty Networks LLC, Inc., 8.875s, 2007## 250 249,375
FrontierVision Holding LP, 0s to 2001, 11.875s to 2007 130 96,200
GCI, Inc., 9.75s, 2007 300 309,750
Granite Broadcasting Corp., 10.375s, 2005 200 209,500
Hollinger International Publishing, Inc., 9.25s, 2007 150 157,500
ITC Deltacom, Inc., 11s, 2007 125 136,563
L3 Communications Corp., 10.375s, 2007 400 432,000
Lenfest Communications, Inc., 10.5s, 2006 175 194,688
Mobile Telecommunication Technologies Corp., 13.5s,
2002 35 40,600
Nextlink Communications, Inc., 9.625s, 2007 100 103,250
RCN Corp., 0s to 2002, 11.125s to 2007## 200 125,500
Sprint Spectrum LP, 11s, 2006 250 280,625
Sygnet Wireless, Inc., 11.5s, 2006 150 159,000
Teleport Communications Group, Inc., 0s to 2001,
11.125s to 2007 375 305,625
Western Wireless Corp., 10.5s, 2007 225 243,000
WorldCom, Inc., 8.875s, 2006 73 78,542
------------
$ 4,822,255
- ------------------------------------------------------------------------------
Transportation - 0.2%
Moran Transportation Co., 11.75s, 2004 $ 50 $ 55,875
- ------------------------------------------------------------------------------
Utilities - Electric - 0.3%
El Paso Electric Co., 8.9s, 2006 $ 75 $ 82,006
- ------------------------------------------------------------------------------
Total U.S. Bonds $ 24,815,083
- ------------------------------------------------------------------------------
Foreign Bonds - 9.9%
Canada - 4.7%
Acetex, Inc., 9.75s, 2003 (Chemicals) $165 $ 170,775
CHC Helicopter Corp., 11.5s, 2002 (Aerospace) 75 79,688
Metronet Communications Corp., 0s to 2002, 10.75s to
2007 (Telecommunications)## 300 183,000
PCI Chemical Canada, Inc., 9.25s, 2007 (Chemicals)## 140 139,300
Repap New Brunswick, Inc., 10.625s, 2005 (Forest and
Paper Products) 265 251,750
Rogers Cablesystems, Inc., 10.125s, 2012
(Telecommunications) 300 327,000
Telesystem International Wireless, Inc., 0s to 2002,
13.25s to 2007 (Telecommunications)## 325 205,562
Telesystem International Wireless, Inc., 0s to 2002,
10.5s to 2007 (Telecommunications)## 150 83,250
------------
$ 1,440,325
- ------------------------------------------------------------------------------
Indonesia - 1.1%
Indah Kiat Finance Mautitius Ltd., 10s, 2007 (Forest
and Paper Products)## $395 $ 335,750
- ------------------------------------------------------------------------------
Luxembourg - 0.9%
Millicom International Cellular Communications Corp.,
0s to 2001,
13.5s to 2006 (Telecommunications) $380 $ 279,300
- ------------------------------------------------------------------------------
Poland - 0.4%
PTC International Finance BV, 0s to 2002, 10.75s to
2007 (Telecommunications)## $175 $ 112,000
- ------------------------------------------------------------------------------
United Kingdom - 2.8%
Dialog Corp. PLC, 11s, 2007 (Telecommunications)## $150 $ 156,375
Bell Cablemedia PLC, 0s to 2000, 11.875s to
2005 (Telecommunications) 50 44,306
Colt Telecommunications Group PLC, 0s to 2001, 12s to
2006 (Telecommunications) 135 105,637
Diamond Cable Communications Corp. PLC, 0s to 2000,
11.75s to 2005 (Telecommunications) 10 7,775
Diamond Cable Communications Corp. PLC, 0s to 2002,
10.75s to 2007 (Telecommunications) 375 259,687
Newsquest Capital PLC, 11s, 2006 (Printing and
Publishing) 15 16,838
Telewest PLC, 9.625s, 2006 (Telecommunications) 225 237,375
Videotron Holdings PLC, 0s to 2000, 11s to 2005
(Telecommunications) 50 44,225
------------
$ 872,218
- ------------------------------------------------------------------------------
Total Foreign Bonds $ 3,039,593
- ------------------------------------------------------------------------------
Total Bonds (Identified Cost, $27,231,568) $ 27,854,676
- ------------------------------------------------------------------------------
Convertible Bond - 0.5%
- ------------------------------------------------------------------------------
Exide Corp., 2.9s, 2005## (Identified Cost, $142,535) $225 $ 145,969
- ------------------------------------------------------------------------------
Stocks
- ------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------------------------------
Information, Paging and Technology
NEXTEL Communications, Inc.* (Identified Cost, $6,000) 371 $ 9,646
- ------------------------------------------------------------------------------
Preferred Stocks - 3.6%
- ------------------------------------------------------------------------------
Consumer Goods and Services - 0.2%
Renaissance Cosmetics, Inc., 14s+# 139 $ 69,500
- ------------------------------------------------------------------------------
Entertainment - 1.7%
Time Warner, Inc., 10.25s 447 $ 505,110
- ------------------------------------------------------------------------------
Supermarkets - 0.1%
Supermarkets General Holdings Corp., $3.52 Exch.,
2007# 1,500 $ 15,188
- ------------------------------------------------------------------------------
Telecommunications - 1.6%
Cablevision Systems Corp., 11.125s* 2,973 $ 343,381
Primedia, Inc., 10s 1,500 156,375
------------
$ 499,756
- ------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $989,259) $ 1,089,554
- ------------------------------------------------------------------------------
Warrants - 0.1%
- ------------------------------------------------------------------------------
Esat Holdings Ltd. (Telecommunications)* 500 $ 17,500
GlobalStar Telecommunications (Telecommunications)*## 195 19,890
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, $26,548) $ 42,610
- ------------------------------------------------------------------------------
Short-Term Obligation - 0.7%
- ------------------------------------------------------------------------------
Principal Amount
000 Omitted)
- ------------------------------------------------------------------------------
Federal Home Loan Bank Corp., due 1/02/98, at
Amortized Cost $200 $ 199,973
- ------------------------------------------------------------------------------
Total Investments (Identified Cost, $28,595,883) $ 29,342,428
Other Assets, Less Liabilities - 4.3% 1,319,138
- ------------------------------------------------------------------------------
Net Assets - 100.0% $ 30,661,566
- ------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security in default.
# Payment-in-kind security.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $28,595,883) $29,342,428
Cash 24,964
Receivable for Series shares sold 964,304
Receivable for investments sold 146,441
Interest receivable 542,504
Receivable from investment adviser 933
Deferred organization expenses 4,719
Other assets 114
-----------
Total assets $31,026,407
-----------
Liabilities:
Payable for Series shares reacquired $ 359,269
Payable to affiliates for -
Management fee 617
Shareholder servicing agent fee 30
Accrued expenses and other liabilities 4,925
-----------
Total liabilities $ 364,841
-----------
Net assets $30,661,566
===========
Net assets consist of:
Paid-in capital $27,461,243
Unrealized appreciation on investments 746,545
Accumulated undistributed net realized gain on investments 624,907
Accumulated undistributed net investment income 1,828,871
-----------
Total $30,661,566
===========
Shares of beneficial interest outstanding 2,484,788
=========
Net assset value per share
(net assets of $30,661,566 / 2,484,788 shares of beneficial
interest outstanding) $12.34
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended December 31, 1997
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $2,047,620
Dividends 10,188
----------
Total investment income $2,057,808
----------
Expenses -
Management fee $ 169,309
Trustees' compensation 2,033
Shareholder servicing agent fee 7,938
Administrative fee 2,774
Printing 29,129
Auditing fees 29,015
Custodian fee 16,437
Amortization of organization expenses 1,837
Legal fees 1,520
----------
Total expenses $ 259,992
Fees paid indirectly (3,335)
Reduction of expenses by investment adviser (30,909)
----------
Net expenses $ 225,748
----------
Net investment income $1,832,060
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) on investment transactions $ 626,112
Change in unrealized appreciation on investments 469,575
----------
Net realized and unrealized gain on investments $1,095,687
----------
Increase in net assets from operations $2,927,747
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,832,060 $ 608,726
Net realized gain on investments 626,112 116,891
Net unrealized gain on investments 469,575 248,395
----------- -----------
Increase in net assets from operations $ 2,927,747 $ 974,012
----------- -----------
Distributions declared to shareholders -
From net investment income $ -- $ (596,086)
From net realized gain on investments -- (114,491)
----------- -----------
Total distributions declared to shareholders $ -- $ (710,577)
----------- -----------
Net increase in net assets from Series share transactions $14,739,696 $10,784,197
----------- -----------
Total increase in net assets $17,667,443 $11,047,632
Net assets:
At beginning of period 12,994,123 1,946,491
----------- -----------
At end of period (including accumulated undistributed net
investment income of $1,828,871 and $12,995, respectively) $30,661,566 $12,994,123
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------- Period Ended
1997 1996 December 31, 1995*
- -------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $10.87 $10.29 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.95 $ 0.89 $ 0.34
Net realized and unrealized
gain on investments 0.52 0.32 0.18
------ ------ ------
Total from investment operations $ 1.47 $ 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 $12.34 $10.87 $10.29
====== ====== ======
Total return 13.52% 11.80% 5.25%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses 1.00% 1.00% 1.00%+
Net investment income 8.17% 8.18% 8.17%+
Portfolio turnover 139% 135% 32%
Net assets at end of period
(000 omitted) $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.
(S) Subject to reimbursement by the Series, the investment adviser voluntarily agreed to maintain the expenses of the Serie
at not more than 1.00% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment income per share and the ratios would have been:
Net investment income $ 0.93 $ 0.82 $ 0.20
Ratios (to average net assets):
Expenses 1.15% 1.62% 4.38%+
Net investment income 8.02% 7.56% 4.82%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(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 12 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) 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
December 31, 1997, 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.
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.
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 can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions. 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
nonrecurring, 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' average daily 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.
Distributions Distributions to shareholders are recorded on the ex-dividend
date. The Series distinguishes between distributions on a tax basis and a
financial reporting basis and requires that only distributions in excess of tax
basis earnings and profits are reported in the financial statements as a tax
return of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended December 31, 1997, $17,231 was reclassified to paid
in capital with $16,184 from accumulated undistributed net investment income and
$1,047 from accumulated net realized gain on investments., due to differences
between book and tax accounting for currency transactions and equalization. This
change had no effect on the net assets or the net asset value per share.
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, which exceed 0.25% of the Series average
daily net assets. The Series in turn will pay MFS an expense reimbursement fee
not greater than 0.25% of average daily net assets. To the extent that the
expense reimbursement fee exceeds the Series' actual expenses, the excess will
be applied to amounts paid by MFS in prior years. At December 31, 1997, the
aggregate unreimbursed expenses owed to MFS by the Series amounted to $ 94,049.
Administrator - Effective March 1, 1997, 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, provided that the administrative fee is not assessed
on Series assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Series pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Series' average daily net assets at an effective annual rate
of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$45,771,181 and $29,964,265, 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 $28,600,039
-----------
Gross unrealized appreciation $ 1,117,009
Gross unrealized depreciation (374,620)
-----------
Net unrealized appreciation $ 742,389
===========
(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).
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,948,827 $ 34,268,303 1,753,000 $18,788,696
Shares issued to shareholders in
reinvestment of distributions -- -- 65,370 710,575
Shares reacquired (1,659,364) (19,528,607) (812,190) (8,715,074)
----------- ------------- ---------- -----------
Net increase 1,289,463 $ 14,739,696 1,006,180 $10,784,197
=========== ============= ========== ===========
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in a $400 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 year ended December 31, 1997, was $149.
(7) Restricted Securities
The Series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1997, the Series owned the following restricted securities (constituting 0.2% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Series does not have the right to demand that such
security be registered. The value of this security is determined by valuations
supplied by a pricing service of brokers, or if not available, in good faith by
or at the direction of the Trustees.
Share
Description Date of Acquisition Amount Cost Value
- -----------------------------------------------------------------------------
Renaissance Cosmetics, 14s 8/08/1996 139 $110,100 $69,500
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS High
Income Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS High Income Series (the Series) (one of the
series constituting MFS Variable Insurance Series) as of December 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year then ended and the years ended December 31,
1997 and 1996, and the financial highlights for each of the years in the
three-year period ended December 31, 1997. These financial statements and
financial highlights are the responsibility of the Series' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS High Income
Series at December 31, 1997, the results of its operations, the changes in its
net assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
- ------------------------------------------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VHI-2 2/98 14.1M
