<PAGE>
[Logo] M F S(R) Semiannual Report
INVESTMENT MANAGEMENT June 30, 1998
- --------------------------------------------------------------------------------
MFS(R) NEW DISCOVERY SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
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[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) NEW DISCOVERY 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 500 Boylston Street
Director, 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
Brian E. Stack*
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
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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</TABLE>
<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.
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:
The Series commenced operation on May 1, 1998, and from that date through June
30, 1998, provided a total return of -1.20% (including the reinvestment of any
distributions).
The portfolio invests in small-capitalization companies that we believe are
most likely to become major enterprises over a period of three-to-five years
based on their abilities to produce sustainable and predictable growth in
sales, revenues, and earnings. In choosing stocks, we are careful that the
prices we're paying are in line with the companies' actual fundamental
strengths and long-term growth prospects. The foundation of our stock-picking
process is MFS(R) Original Research(SM), by which stocks are selected after
in-depth fundamental analysis of companies' earnings outlooks, managements,
business models, competitive strategies, market positions, and growth
prospects. This research-intensive process allows us to own companies that are
enjoying growth driven by innovation and creativity rather than by the
temporary boost of a booming economy.
When investing in smaller companies thorough research is essential, as smaller
companies are generally followed on Wall Street by fewer analysts than are
larger corporations. Simply put, the depth of information about any small
company that is available to investors is limited. Our staff of more than 30
research analysts helps us gain an informational edge that enables us to
discover promising young stocks early.
Much of the economic growth in the United States has been driven by technology
companies. Technology stocks comprise about 23% of the equities in the
portfolio. In choosing investments here, we seek out stocks that, spurred by
the growing demand for all types of technology, we believe can sustain long-
term growth. We hold PMC-Sierra, for example, which makes an integrated
circuit for transmitting voice and data over a wide area. This company is
benefiting from the Internet boom and the growing demand for multimedia
applications. The company's high margins, leading market share, and ability to
compete effectively in a fast-growing market sector have made it an attractive
investment for the portfolio.
Another stock that is a byproduct of the growth of technology in our lives is
Learning Tree International. Learning Tree provides information technology
training to technology professionals. The pace of change in technology is so
rapid that even professionals can find their skills becoming obsolete.
Although the company's share price is feeling some pressure when compared to
its spectacular results in 1997, it remains a leader in a vibrant market and
is investing to extend that leadership. We feel the stock is attractively
priced and are adding to our position because we expect solid long-term
earnings growth.
Another stock that we feel is particularly promising is TMP Worldwide, which
runs a Web site on the Internet called The Monster Board. The Monster Board is
the biggest online meeting place for job seekers and employers. TMP is
leveraging its leadership in Yellow Pages and recruitment advertising to
create a successful online business.
One of the stocks that we find most attractive in the portfolio is Catalina
Marketing, which runs a network that issues instant coupons at supermarket
checkouts. The company has long-term contracts with about 1,100 supermarkets
in the United States. As a customer's goods are scanned, the Catalina system
identifies the customer as a potential target for coupons for complementary or
competitive products. The system then issues an appropriate coupon at the
register.
Finally, as we approach the end of the century, our investment decisions must
take into account the looming Year 2000 problem for makers and consumers of
technology. This issue presents both an opportunity and a risk. We do not
invest in companies whose main line of business is fixing Year 2000 problems
because this will only provide them with short-term earnings growth that will
likely disappear after the turn of the century. However, companies that can
use their Year 2000 expertise as an entree and a proving ground for additional
work are better candidates for the portfolio. At the same time, the Year 2000
problem creates a potential investment risk for companies that rely heavily on
older-generation computer systems. These companies will need to spend vast
amounts of time and money to update their software. We are carefully reviewing
the action plans of portfolio companies that might be vulnerable to this risk.
Globally, the Asian crisis has had little impact on the portfolio, as most of
the companies we invest in are focused on selling products and services to the
U.S. economy. Any damage to the portfolio has been more a reflection of
investor psychology than any real fundamental change. In Europe, while few
companies are dependent on international trade, the reduction of trade
barriers between European nations could help smaller companies sell globally
earlier in their life cycles. This could help their markets expand and their
earnings grow.
Respectfully,
/s/ Brian E. Stack
Brian E. Stack
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.
PORTFOLIO MANAGER'S PROFILE
Brian E. Stack is a Vice President -- Investments of MFS(R) Investment
Management(SM) and portfolio manager of MFS(R) Institutional Emerging
Equities Fund, MFS(R) New Discovery Fund and MFS(R) New Discovery Series
offered through MFS(R)/Sun Life annuity products. Mr. Stack joined MFS in 1993
as an equity research analyst following the chemical, hospital management,
HMO, medical services and business services industries and was named a
portfolio manager in 1996. He has worked as an equity analyst since 1987. He
is a graduate of Boston College and has an M.B.A. from the University of
Virginia.
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>
SERIES FACTS
Objective: Seeks capital appreciation.
Commencement of
investment operations: May 1, 1998
Size: $669.4 thousand 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 for the applicable time periods.
CUMULATIVE TOTAL RATE OF RETURN THROUGH JUNE 30, 1998
10 Years/Life*
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Cumulative Total Return -1.20%
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*For the period from the commencement of the Series' investment operations,
May 1, 1998, 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.
Investing in small or emerging growth companies involves greater risk than is
customarily associated with more-established companies. These risks may
increase share price volatility.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) - JUNE 30, 1998
STOCKS - 94.6%
<CAPTION>
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Issuer Shares Value
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<S> <C> <C>
U.S. Stocks - 92.8%
Advertising - 0.8%
TMP Worldwide, Inc.* 148 $ 5,162
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Airlines - 1.2%
Atlas Air, Inc.* 151 $ 5,106
Skywest, Inc. 110 3,080
--------
$ 8,186
- ------------------------------------------------------------------------------------------------------
Auto Parts - 0.2%
Brooks Automation, Inc.* 125 $ 1,625
- ------------------------------------------------------------------------------------------------------
Biotechnology - 1.8%
IDEXX Laboratories, Inc.* 476 $ 11,840
- ------------------------------------------------------------------------------------------------------
Business Machines - 3.6%
Affiliated Computer Services, Inc., "A"* 533 $ 20,520
Splash Technology Holdings, Inc.* 200 3,438
--------
$ 23,958
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Business Services - 21.7%
AccuStaff, Inc.* 290 $ 9,062
Alternative Resources Corp.* 235 2,908
BISYS Group, Inc.* 250 10,250
Catalina Marketing Corp.* 101 5,246
Ceridian Corp.* 110 6,462
DST Systems, Inc.* 213 11,928
Envoy Corp. 57 2,700
Fiserv, Inc.* 204 8,664
Global Directmail Corp.* 270 3,409
Interim Services, Inc.* 321 10,312
Intuit, Inc.* 66 4,043
Learning Tree International, Inc.* 467 9,398
May & Speh, Inc.* 302 6,002
Memberworks, Inc.* 111 3,580
Meta Group, Inc.* 190 4,204
NOVA Corp.* 174 6,220
Paymentech, Inc.* 170 3,496
Personnel Group of America, Inc.* 199 3,980
PMT Services, Inc.* 291 7,402
Policy Management Systems Corp.* 134 5,260
Professional Detailing, Inc.* 63 1,567
Renaissance Worldwide, Inc.* 201 4,372
Robert Half International, Inc.* 73 4,079
SCB Computer Technology, Inc.* 4 44
Superior Services, Inc.* 112 3,367
Technology Solutions Co.* 232 7,351
--------
$145,306
- ------------------------------------------------------------------------------------------------------
Chemicals - 1.0%
Sigma-Aldrich Corp. 196 $ 6,885
- ------------------------------------------------------------------------------------------------------
Computer Software - Services - 0.3%
Concentric Network Corp.* 11 $ 333
International Integration, Inc.* 104 1,794
--------
$ 2,127
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 12.0%
American Business Information, Inc., "A"* 277 $ 4,224
American Business Information, Inc., "B"* 55 880
Aspen Technology, Inc.* 164 8,282
Black Box Corp.* 92 3,053
Cadence Design Systems, Inc.* 413 12,906
Compuware Corp.* 95 4,857
Comverse Technology, Inc.* 50 2,594
Edify Corp.* 150 1,519
Fair, Isaac & Co., Inc. 2 76
Harbinger Corp.* 111 2,685
Security Dynamics Technologies, Inc.* 236 4,366
Sterling Software, Inc.* 256 7,568
SunGard Data Systems, Inc.* 187 7,176
Synopsys, Inc.* 180 8,235
Transaction System Architects, Inc., "A"* 146 5,621
USCS International, Inc.* 197 4,075
Vantive Corp.* 119 2,440
--------
$ 80,557
- ------------------------------------------------------------------------------------------------------
Construction Services - 0.7%
Martin Marietta Materials, Inc. 107 $ 4,815
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.1%
Dial Corp. 145 $ 3,761
Revlon, Inc., "A"* 41 2,106
Sportsline USA, Inc.* 42 1,536
--------
$ 7,403
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Electrical Equipment - 1.6%
Barnett, Inc.* 72 $ 1,458
Belden, Inc. 135 4,134
Cable Design Technologies Corp.* 259 5,342
--------
$ 10,934
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Electronics - 5.0%
Analog Devices, Inc.* 130 $ 3,193
BMC Industries, Inc. 160 1,400
Burr-Brown Corp.* 223 4,683
Lattice Semiconductor Corp.* 110 3,125
Microchip Technology, Inc.* 108 2,821
Photronics, Inc.* 220 4,854
PMC-Sierra, Inc.* 103 4,828
Sipex Corp.* 256 5,504
VLSI Technology, Inc.* 162 2,719
--------
$ 33,127
- ------------------------------------------------------------------------------------------------------
Entertainment - 3.8%
Citadel Communications Corp. 100 $ 1,600
Cox Radio, Inc., "A"* 34 1,471
Gemstar International Group Ltd.* 277 10,370
Harrah's Entertainment, Inc.* 198 4,603
Heftel Broadcasting Corp., "A"* 68 3,043
Jacor Communications, Inc.* 78 4,602
--------
$ 25,689
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 1.4%
ARM Financial Group, Inc., "A" 21 $ 465
Conning Corp. 83 1,618
Student Loan Corp. 44 2,071
Waddell & Reed Financial, Inc., "A" 230 5,505
--------
$ 9,659
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Food and Beverage Products - 0.8%
Earthgrains Co. 60 $ 3,353
Mondavi (Robert) Corp.* 65 1,844
--------
$ 5,197
- ------------------------------------------------------------------------------------------------------
Insurance - 1.3%
Annuity and Life Re Holdings Ltd.* 108 $ 2,390
Executive Risk, Inc. 51 3,761
Life Re Corp. 33 2,735
--------
$ 8,886
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 2.7%
AmeriSource Health Corp., "A"* 106 $ 6,963
Datascope Corp.* 96 2,550
PSS World Medical, Inc.* 481 7,034
Virgin Islands Technologies, Inc.* 140 1,584
--------
$ 18,131
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 8.3%
Concentra Managed Care, Inc.* 297 $ 7,722
Cytyc Corp.* 219 3,572
Hologic, Inc.* 177 3,219
IDX Systems Corp.* 106 4,883
Mid Atlantic Medical Services, Inc.* 287 3,301
NCS Healthcare, Inc., "A"* 173 4,930
Orthodontic Centers of America, Inc.* 86 1,801
Quorum Health Group, Inc.* 121 3,207
Renal Care Group, Inc.* 89 3,922
Steris Corp.* 85 5,405
Total Renal Care Holdings, Inc.* 359 12,385
Transition Systems, Inc.* 104 1,105
--------
$ 55,452
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Oil Services - 0.8%
Dril-Quip, Inc.* 26 $ 683
Global Industries, Inc.* 223 3,763
National Oilwell, Inc.* 26 697
--------
$ 5,143
- ------------------------------------------------------------------------------------------------------
Oils - 0.8%
Newfield Exploration Co.* 212 $ 5,274
- ------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
King Pharmaceuticals, Inc.* 146 $ 2,044
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.6%
Applied Graphics Technologies, Inc.* 42 $ 1,922
Scholastic Corp.* 212 8,453
--------
$ 10,375
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.5%
Buffets, Inc.* 369 $ 5,789
Capstar Hotel Co.* 125 3,500
Friendly Ice Cream Corp.* 31 523
--------
$ 9,812
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 4.0%
Caliber Learning Network, Inc.* 106 $ 1,630
Copart, Inc.* 177 4,093
Equity Corp. International* 174 4,176
International Specialty Products, Inc.* 224 4,172
Newport News Shipbuilding, Inc. 210 5,617
Sodexho Marriott Services, Inc.* 149 4,321
Watsco, Inc. 73 2,569
--------
$ 26,578
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Stores - 7.1%
AnnTaylor Stores Corp.* 152 $ 3,221
BJ's Wholesale Club, Inc.* 83 3,372
CSK Auto Corp.* 266 6,717
Duane Reade, Inc.* 177 5,310
Gymboree Corp.* 150 2,273
Mazel Stores, Inc.* 97 1,552
Party City Corp.* 217 6,374
Petco Animal Supplies, Inc.* 349 6,958
Regis Corp. 162 4,789
Viking Office Products, Inc.* 225 7,059
--------
$ 47,625
- ------------------------------------------------------------------------------------------------------
Technology - 1.3%
Galileo Technology Ltd.* 659 $ 8,897
- ------------------------------------------------------------------------------------------------------
Telecommunications - 6.1%
Allegiance Telecom, Inc.* 100 $ 1,500
American Tower Corp., "A"* 126 3,142
Aspect Telecommunications Corp.* 290 7,939
Hyperion Telecommunications, Inc., "A"* 232 3,639
Intermedia Communications, Inc.* 166 6,962
IXC Communications, Inc.* 89 4,316
Lightbridge, Inc.* 266 2,261
Natural Microsystems Corp.* 113 1,808
Nextlink Communications, Inc., "A"* 123 4,659
Transaction Network Services, Inc.* 208 4,381
--------
$ 40,607
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Total U.S. Stocks $621,294
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 1.8%
Netherlands - 1.8%
Brunel International N.V. (Human Resources)* 58 $ 2,406
Elsag Bailey Process Automation N.V. (Machinery)* 411 9,890
--------
$ 12,296
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Total Foreign Stocks $ 12,296
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Total Stocks (Identified Cost, $634,786) $633,590
- ------------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 4.5%
- ------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/98, at Amortized Cost $ 30 $ 30,000
- ------------------------------------------------------------------------------------------------------
SECURITIES SOLD SHORT - (1.2)%
- ------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------
Dell Computer Corp.* (40) $ (3,713)
Gateway 2000, Inc.* (90) (4,556)
- ------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Identified Cost, $(7,129)) $ (8,269)
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $657,657) $655,321
OTHER ASSETS, LESS LIABILITIES - 2.1% 14,106
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $669,427
- ------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
- --------------------------------------------------------------------------------
June 30, 1998
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $657,657) $ 655,321
Cash 3,656
Foreign currency, at value (identified cost, $11) 11
Receivable for investments sold 46,493
Interest and dividends receivable 17
Receivable from investment adviser 1,197
---------
Total assets $ 706,695
---------
Liabilities:
Payable for investments purchased $ 37,205
Payable to affiliates -
Management fee 49
Accrued expenses and other liabilities 14
---------
Total liabilities $ 37,268
---------
Net assets $ 669,427
=========
Net assets consist of:
Paid-in capital $ 676,930
Unrealized depreciation on investments (2,337)
Accumulated net realized loss on investments (4,385)
Accumulated net investment loss (781)
---------
Net assets $ 669,427
=========
Shares of beneficial interest outstanding 67,777
======
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $9.88
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Period Ended June 30, 1998*
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 246
Dividends 127
Foreign taxes withheld (2)
-------
Total investment income $ 371
-------
Expenses -
Management fee $ 901
Legal fees 1,634
Auditing fees 1,000
Miscellaneous 309
-------
Total expenses $ 3,844
Preliminary reduction of expenses by investment adviser (2,675)
Fees paid indirectly (17)
-------
Net expenses $ 1,152
-------
Net investment loss $ (781)
-------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(4,385)
-------
Net realized loss on investment transactions $(4,385)
-------
Change in unrealized appreciation (depreciation) -
Investments $(2,337)
-------
Net unrealized loss on investments $(2,337)
-------
Net realized and unrealized loss on investments $(6,722)
-------
Decrease in net assets from operations $(7,503)
=======
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through June 30, 1998.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
Period Ended
June 30, 1998*
- --------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment loss $ (781)
Net realized loss on investment transactions (4,385)
Net unrealized loss on investments (2,337)
--------
Decrease in net assets from operations $ (7,503)
--------
Net increase in net assets from Series share transactions $676,930
--------
Total increase in net assets $669,427
Net assets:
At beginning of period --
--------
At end of period (including accumulated net investment
loss of $781) $669,427
========
*For the period from the commencement of the Series' investment operations,
May 1, 1998, through June 30, 1998.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Period Ended
June 30, 1998*
(Unaudited)
- --------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00**
------
Income from investment operations# -
Net investment loss $(0.01)
Net realized and unrealized loss on investments (0.11)
------
Total from investment operations $(0.12)
------
Net asset value - end of period $ 9.88
======
Total return (1.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.15%+
Net investment loss (0.78)%+
Portfolio turnover 43%
Net assets at end of period $669,427
* For the period from the commencement of the Series' investment operations,
May 1, 1998, through June 30, 1998.
** Net asset value on date of commencement of operations.
+ 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 expenses of the Series, exclusive of management fees, at
not more than 0.25% of average daily net assets. To the extent actual
expenses were over/under this limitation, the net investment loss per share
and the ratios would have been:
Net investment loss $(0.10)
Ratios (to average net assets):
Expenses## 3.84%+
Net investment loss (3.47)%+
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Business and Organization
MFS New Discovery Series (the Series) is a diversified series of MFS(R)
Variable Insurance Trust(SM) (the Trust) which is comprised 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(R) 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 11
shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are 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. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Short Sales - The Series may enter into short sales. A short sale transaction
involves selling a security which the Series does not own with the intent of
purchasing it later at a lower price. The Series will realize a gain if the
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the Series must replace the
borrowed security. Losses can exceed the proceeds from short sales and can be
greater than losses from the actual purchase of a security. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
the premium, dividends, or interest the Series may be required to pay in
connection with a short sale. Whenever the Series engages in short sales, its
custodian segregates cash or marketable securities in an amount that, when
combined with the amount of proceeds from the short sale deposited with the
broker, at least equals the current market value of the security sold short.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is 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.
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.
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.
(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 0.90%
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 $2,675.
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 U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $894,940
and $265,997, 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 $657,657
--------
Gross unrealized depreciation $(35,481)
Gross unrealized appreciation 33,145
--------
Net unrealized depreciation $ (2,336)
========
(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:
Period Ended June 30, 1998*
------------------------------
Shares Amount
- -------------------------------------------------------------------------------
Shares sold 67,808 $ 677,218
Shares reacquired (31) (288)
------ ---------
Net increase 67,777 $ 676,930
====== =========
* For the period from the commencement of the Series' investment operations,
May 1, 1998, through June 30, 1998.
(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 $1.
<PAGE>
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MND-3 8/98 430
