<PAGE>
[Logo] MFS(SM) Annual Report
INVESTMENT MANAGEMENT for Year Ended
December 31, 1997
MFS(R) EMERGING GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
[Graphic Omitted]
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MFS(R) EMERGING GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
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 MANAGERS INVESTOR SERVICE
John W. Ballen* MFS Service Center, Inc.
Toni Y. Shimura* P.O. Box 2281
Boston, MA 02107-9906
TREASURER
W. Thomas London* For additional information,
contact your financial adviser.
ASSISTANT TREASURERS
Mark E. Bradley* CUSTODIAN
Ellen Moynihan* State Street Bank and Trust Company
James O. Yost*
AUDITORS
SECRETARY Deloitte & Touche LLP
Stephen E. Cavan*
WORLD WIDE WEB
ASSISTANT SECRETARY www.mfs.com
James R. Bordewick, Jr.*
</TABLE>
[graphic omitted]
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 U.S. economic growth
continues to be impressive, events in the Pacific Rim will somewhat offset
that and, therefore, markets are likely to continue to focus on Federal
Reserve Board activity.
The extreme volatility seen in the U.S. equity market in the fall was, we
believe, the consequence of overvaluations that had been evident for some
months. As a result, the stock market has been vulnerable to some type of
correction and has been impacted in the near term by chaotic market conditions
in the Pacific Rim. In the face of all this, however, the equity market
continues to exhibit surprising strength, much of it the result of continued
gains in corporate earnings, a trend that could be an important indicator of
the market's future direction. Certainly the situation throughout Asia bears
close scrutiny because it appears to be clearly deflationary and raises the
prospect of trade wars developing throughout the area. We are not convinced
that U.S. markets have escaped totally from October's volatility. Thus, not
only is the near-term outlook for profits being adjusted for the Asian crisis,
we also believe equity valuations have risen to a point where a cautious
investment approach seems warranted, with a need for particular attention to
be paid to the effect of Pacific Rim volatility on the earnings of U.S.
companies.
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
MFS Emerging Growth Series
For the year ended December 31, 1997, the Series provided a total return of
21.90% (including the reinvestment of any distributions). This compares to a
22.36% return for the Russell 2000 Total Return Index (the Russell 2000) and
to a 33.36% return for the Standard & Poor's 500 Composite Index (the S&P 500)
for the same period. The Russell 2000 is an unmanaged index comprised of 2,000
of the smallest U.S.-domiciled company common stocks (on the basis of
capitalization) that are traded in the United States on the New York Stock
Exchange, the American Stock Exchange, and NASDAQ. The S&P 500 is a popular,
unmanaged index of common stock total return performance.
Although the Series' performance benefited from the stock price appreciation
of many of its holdings in the technology, leisure, and retailing sectors, the
overall stock market in 1997 continued to be dominated by the larger-
capitalization issues as represented by the Dow Jones Industrial Average and
the S&P 500. However, the Series kept pace with the Russell 2000, as investors
rewarded the earnings growth of many of the companies in the portfolio.
The past year was a paradoxical one. On one hand, the economy was stronger
than expected, yet inflation remained extremely low. Economic growth was so
strong early in the year that concerns about possible interest-rate increases
enhanced the appeal of the larger-capitalization stocks of the S&P 500,
despite small-company stocks' superior earnings growth and attractive
valuations. At mid-year, when it became apparent that inflation was subdued,
emerging-growth stocks outperformed the larger-capitalization stocks. However,
in late 1997, with the economic problems in Asia, investors again sought the
liquidity and perceived safety of the larger-cap stocks.
The portfolio's performance benefited from the strong performance of its
largest sector, technology. Our holdings are primarily in software, a sector
in which the Series owns leading database, design automation, and mainframe
software companies such as Cadence Design Systems, BMC Software, Compuware,
SAP, and Microsoft, all of which are helping corporations around the world
become more productive. Our holdings in leisure, primarily in lodging and
media, also helped performance. The stocks of radio and television
broadcasting companies such as Clear Channel and Cox Radio were buoyed by
positive advertising trends and continued consolidation within their markets.
Drug store and food retailers such as CVS, Rite Aid, and Fred Meyer
contributed to performance because of strong underlying growth and
cost-cutting opportunities generated by mergers and acquisitions. Also,
investors finally recognized the many synergies of the Series' largest
position, Cendant, the new company formed by the merger of HFS and CUC
International, two leading consumer service companies. The Series' second-
largest position, Tyco International (a diversified company), contributed
favorably as well due to strong internal growth and acquisitions that added to
earnings.
One area that did not perform as well as expected was health care, in particular
the stocks of health maintenance organizations (HMOs). Higher-than- expected
expenses more than offset price increases, creating earnings disappointments.
Now that these companies have a more realistic view of the cost of doing
business, they should begin to price their product more realistically and
earnings should meet investors' expectations.
Looking ahead, the fundamental outlook for emerging-growth stocks remains
positive. We expect a slowing of economic growth and a continuation of the
benign interest-rate environment that marked this past year. We believe
emerging-growth stocks should generate stronger relative earnings growth than
their large-cap, multinational counterparts that are typically more exposed to
the turmoil in Asia. Robust earnings, combined with attractive valuations,
should help performance. Moreover, we expect the recent capital gains tax cut
to increase the investment appeal of the group. We believe that our strategy
of searching for rapidly growing companies that are early in their development
and for growth stocks at reasonable prices will be rewarded by investors in
1998.
Respectfully,
/s/ John W. Ballen /s/ Toni Y. Shimura
John W. Ballen Toni Y. Shimura
Portfolio Manager Portfolio Manager
PORTFOLIO MANAGERS' PROFILES
John W. Ballen began his career at MFS in 1984 as an industry specialist and
was promoted to Investment Officer in 1986, Vice President -- Investments in
1987, Director of Research in 1988, Senior Vice President in 1990, Director of
Equity Portfolio Management in 1993, Chief Equity Officer in 1995, and
Executive Vice President in 1997. A graduate of Harvard College, the
University of New South Wales, and the Stanford University Graduate School of
Business Administration, he has managed MFS Emerging Growth Series since 1995.
Toni Y. Shimura joined the MFS Research Department in 1987 and was promoted to
Investment Officer in 1990, Assistant Vice President -- Investments in 1991,
and Vice President -- Investments in 1992. A graduate of Wellesley College and
the Massachusetts Institute of Technology Sloan School of Management, she has
managed MFS Emerging Growth Series since 1995.
OBJECTIVE AND POLICIES
The Series seeks to provide long-term growth of capital. Dividend and interest
income from portfolio securities, if any, is incidental to the Series'
investment objective of long-term growth of capital.
Commencement of investment operations: July 24, 1995
TAX FORM SUMMARY
DIVIDENDS-RECEIVED DEDUCTION
For the year ended December 31, 1997, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
22.6%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Emerging
Growth 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 Emerging S&P 500 Russell 2000 Consumer
Growth Series Composite Total Price
- VIT Index Return Index Index - U.S.
8/95 $10,000 $10,000 $10,000 $10,000
12/95 11,740 11,078 10,614 10,059
12/96 13,739 13,621 12,365 10,400
12/97 16,749 18,165 15,130 10,623
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
Life of
1 Year Series*
- -----------------------------------------------------------------------------
MFS Emerging Growth Series +21.90% +23.53%
- -----------------------------------------------------------------------------
Russell 2000 Total Return Index# +22.36% +21.24%
- -----------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +33.36% +29.42%
- -----------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.51%
- -----------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
July 24, 1995, through December 31, 1997.
#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
Stocks - 95.5%
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Issuer Shares Value
- ------------------------------------------------------------------------------------------------------
U.S. Stocks - 92.7%
Advertising - 0.2%
<S> <C> <C>
Lamar Advertising Co., "A"* 4,300 $ 170,925
Outdoor Systems, Inc.* 18,300 702,263
------------
$ 873,188
- ------------------------------------------------------------------------------------------------------
Aerospace - 0.1%
Thiokol Corp. 4,000 $ 325,000
- ------------------------------------------------------------------------------------------------------
Apparel and Textiles
Tefron Ltd.* 1,400 $ 32,200
- ------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 0.5%
Compass Bancshares, Inc. 10,100 $ 441,875
First Security Corp. 5,000 209,375
First Virginia Banks, Inc. 2,700 139,556
Firstar Corp. 4,300 182,481
Interra Financial, Inc. 1,700 117,300
Provident Financial Group, Inc. 3,000 145,500
Summit Bancorp 3,500 186,375
United States Trust Corp. 4,500 281,813
------------
$ 1,704,275
- ------------------------------------------------------------------------------------------------------
Building - 0.4%
Newport News Shipbuilding, Inc. 63,500 $ 1,615,281
- ------------------------------------------------------------------------------------------------------
Business Machines - 0.7%
Affiliated Computer Services, Inc., "A"* 31,200 $ 820,950
Sun Microsystems, Inc.* 48,000 1,914,000
------------
$ 2,734,950
- ------------------------------------------------------------------------------------------------------
Business Services - 11.9%
AccuStaff, Inc.* 114,400 $ 2,631,200
BISYS Group, Inc.* 29,900 994,175
Cendant Corp.* 916,104 31,491,075
Corestaff, Inc.* 45,200 1,197,800
DST Systems, Inc.* 12,800 546,400
Fine Host Corp.* 7,100 53,250
First Data Corp. 85,100 2,489,175
Galileo International, Inc. 4,900 135,363
Ikon Office Solutions, Inc. 2,400 67,500
Ivex Packaging Corp.* 2,300 55,200
Learning Tree International, Inc.* 109,900 3,173,362
Technology Solutions Co.* 110,175 2,905,866
Transaction System Architects, Inc., "A"* 3,400 129,200
------------
$ 45,869,566
- ------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.4%
Century Telephone Enterprises, Inc. 28,900 $ 1,439,581
- ------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.4%
Autodesk, Inc. 28,285 $ 1,046,545
Compaq Computer Corp. 18,450 1,041,272
Microsoft Corp.* 85,350 11,031,487
------------
$ 13,119,304
- ------------------------------------------------------------------------------------------------------
Computer Software - Systems - 17.9%
Adobe Systems, Inc. 1,700 $ 70,125
BMC Software, Inc.* 189,800 12,455,625
Cadence Design Systems, Inc.* 438,300 10,738,350
Computer Associates International, Inc. 371,300 19,632,487
Compuware Corp.* 370,700 11,862,400
Oracle Corp.* 570,050 12,719,241
Scopus Technology* 30,500 366,000
Security Dynamics Technologies, Inc.* 1,700 60,775
Synopsys, Inc.* 23,100 825,825
------------
$ 68,730,828
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 6.4%
Avis Rent A Car, Inc.* 12,400 $ 396,025
Carson, Inc., "A"* 64,800 433,350
Dollar Thrifty Automotive Group* 21,500 440,750
Service Corp. International 7,100 262,256
Tyco International Ltd. 506,562 22,826,950
United Rentals, Inc.* 2,700 52,144
------------
$ 24,411,475
- ------------------------------------------------------------------------------------------------------
Defense Electronics - 0.3%
Loral Space & Communications Corp.* 60,000 $ 1,286,250
- ------------------------------------------------------------------------------------------------------
Electronics - 0.6%
Altera Corp.* 54,500 $ 1,805,312
Xilinx, Inc.* 12,300 431,269
------------
$ 2,236,581
- ------------------------------------------------------------------------------------------------------
Entertainment - 8.8%
American Radio Systems Corp., "A"* 30,700 $ 1,636,694
CBS Corp. 82,800 2,437,425
Chancellor Media Corp.* 18,600 1,388,025
Clear Channel Communications, Inc.* 69,800 5,544,737
Cox Radio, Inc., "A"* 41,500 1,670,375
Emmis Broadcasting Corp.,"A"* 19,800 903,375
Gemstar International Group Ltd.* 14,700 358,313
Harrah's Entertainment, Inc.* 46,100 870,138
Hearst-Argyle Television, Inc.* 17,700 526,575
Jacor Communications, Inc.* 137,100 7,283,437
LIN Television Corp.* 63,900 3,482,550
SFX Broadcasting, Inc., "A"* 26,300 2,110,575
Sinclair Broadcast Group, Inc., "A"* 18,300 853,238
Univision Communications, Inc., "A"* 26,500 1,850,031
Viacom, Inc., "B"* 71,900 2,979,356
------------
$ 33,894,844
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 3.6%
Associates First Capital Corp., "A" 21,600 $ 1,536,300
Charter One Financial, Inc. 21,265 1,342,353
Conning Corp.* 900 15,075
Consolidated Capital Corp.* 91,200 1,852,500
Donaldson Lufkin & Jenrette, Inc. 9,200 731,400
Franklin Resources, Inc. 50,100 4,355,569
Lehman Brothers Holdings, Inc. 9,800 499,800
Linc Capital, Inc.* 1,300 25,513
Morgan Stanley, Dean Witter, Discover & Co. 24,800 1,466,300
Peoples Heritage Financial Group 8,700 400,200
Price (T Rowe) & Associates, Inc. 21,000 1,320,375
Union Planters Corp. 2,700 183,431
------------
$ 13,728,816
- ------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.6%
Beringer Wine Estates Holdings, Inc., "B"* 1,400 $ 53,200
Corn Products International, Inc.* 3,400 101,362
McCormick & Co., Inc. 22,000 616,000
Suiza Foods Corp.* 15,500 923,219
Tootsie Roll Industries, Inc. 3,100 193,750
Whole Foods Market, Inc.* 5,400 276,075
------------
$ 2,163,606
- ------------------------------------------------------------------------------------------------------
Insurance - 0.3%
ACE Ltd. 3,500 $ 337,750
Conseco, Inc. 17,900 813,331
ESG Re Ltd.* 2,500 58,750
Hartford Life, Inc., "A" 1,800 81,563
------------
$ 1,291,394
- ------------------------------------------------------------------------------------------------------
Machinery - 0.1%
SI Handling Systems, Inc. 20,750 $ 285,313
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 1.0%
Arterial Vascular Engineering, Inc.* 31,200 $ 2,028,000
McKesson Corp. 9,000 973,687
Mentor Corp. 7,700 281,050
Pathogensis Corp.* 8,800 326,700
Safeskin Corp.* 6,000 340,500
------------
$ 3,949,937
- ------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 7.4%
Columbia/HCA Healthcare Corp. 23,200 $ 687,300
Cyberonics, Inc.* 85,500 1,303,875
Foundation Health Systems, Inc.* 360 8,055
Guidant Corp. 63,300 3,940,425
Health Management Associates, Inc., "A"* 6,300 159,075
HEALTHSOUTH Corp.* 120,200 3,335,550
Integrated Health Services, Inc. 36,700 1,144,581
Mariner Health Group, Inc.* 15,500 251,875
Medtronic, Inc. 8,100 423,731
Orthodontic Centers of America, Inc.* 69,700 1,158,763
Oxford Health Plans, Inc.* 35,300 549,356
PacifiCare Health Systems, Inc.,"B"* 33,200 1,738,850
Renal Treatment Centers, Inc.* 33,800 1,221,025
St. Jude Medical, Inc.* 2,100 64,050
United Healthcare Corp. 242,800 12,064,125
VWR Scientific Products Corp.* 6,400 180,800
Zonagen, Inc.* 9,900 180,056
------------
$ 28,411,492
- ------------------------------------------------------------------------------------------------------
Oil Services - 1.1%
Cooper Cameron Corp.* 16,000 $ 976,000
Diamond Offshore Drilling, Inc. 18,600 895,125
Global Industries, Inc.* 51,800 880,600
Input/Output, Inc.* 6,300 187,031
Noble Drilling Corp.* 24,000 735,000
Weatherford Enterra, Inc.* 8,900 389,375
------------
$ 4,063,131
- ------------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Allied Waste Industries, Inc.* 32,900 $ 766,981
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.2%
Applied Graphics Technologies, Inc.* 6,200 $ 330,150
Mail-Well, Inc.* 10,600 429,300
------------
$ 759,450
- ------------------------------------------------------------------------------------------------------
Railroads - 0.5%
Kansas City Southern Industries, Inc. 64,100 $ 2,035,175
- ------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.1%
Starwood Lodging Trust 4,400 $ 254,650
- ------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.7%
Applebee's International, Inc. 44,800 $ 809,200
ITT Corp.* 25,800 2,138,175
Promus Hotel Corp.* 76,982 3,233,244
Suburban Lodges of America, Inc.* 32,700 435,319
------------
$ 6,615,938
- ------------------------------------------------------------------------------------------------------
Special Products and Services - 0.2%
Edutrek International, Inc., "A"* 800 $ 20,800
Royal Caribbean Cruises Ltd. 14,000 746,375
Veritas DGC, Inc.* 3,600 142,200
------------
$ 909,375
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Stores - 11.2%
Consolidated Stores Corp.* 53,700 $ 2,359,444
Corporate Express, Inc.* 139,700 1,798,637
CVS Corp. 65,800 4,215,312
Dollar General Corp. 6,000 217,500
General Nutrition Cos., Inc.* 56,100 1,907,400
Home Depot, Inc. 58,800 3,461,850
Linens 'N Things, Inc.* 8,500 370,813
Lowes Co., Inc. 4,000 190,750
Micro Warehouse, Inc.* 81,800 1,140,088
Office Depot, Inc.* 312,100 7,470,894
Pier 1 Imports, Inc. 7,000 158,375
Republic Industries, Inc.* 274,100 6,389,956
Rite Aid Corp. 128,200 7,523,737
Staples, Inc.* 56,500 1,567,875
U.S. Office Products Co.* 207,400 4,070,225
Viking Office Products, Inc.* 4,400 95,975
------------
$ 42,938,831
- ------------------------------------------------------------------------------------------------------
Supermarkets - 1.9%
Albertsons, Inc. 5,600 $ 265,300
Kroger Co.* 9,900 365,681
Meyer (Fred), Inc.* 166,100 6,041,888
Safeway, Inc.* 10,400 657,800
------------
$ 7,330,669
- ------------------------------------------------------------------------------------------------------
Telecommunications - 8.9%
American Communications Services, Inc.* 15,400 $ 197,313
Aspect Telecommunications Corp.* 9,300 194,138
Brooks Fiber Properties, Inc.* 6,000 330,000
Cincinnati Bell, Inc. 46,500 1,441,500
Cisco Systems, Inc.* 319,250 17,798,187
Inter-Tel, Inc. 16,400 317,750
Intermedia Communications, Inc.* 75,800 4,604,850
LCI International, Inc.* 42,400 1,303,800
Lucent Technologies, Inc. 10,300 822,712
Nextlink Communications, Inc., "A"* 15,500 330,344
TCA Cable TV, Inc. 5,500 253,000
Tel-Save Holdings, Inc.* 15,700 312,037
Teleport Communications Group, Inc., "A"* 7,400 406,075
WorldCom, Inc.* 200,200 6,056,050
------------
$ 34,367,756
- ------------------------------------------------------------------------------------------------------
Utilities - Telephone - 2.1%
MCI Communications Corp. 192,300 $ 8,232,844
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $356,378,681
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 2.8%
France
Dassault Systemes S.A., ADR (Computer Software -
Systems) 3,200 $ 98,800
- ------------------------------------------------------------------------------------------------------
Germany - 2.1%
SAP AG, Preferred (Computer Software - Systems) 25,025 $ 8,195,444
- ------------------------------------------------------------------------------------------------------
Netherlands - 0.1%
Benckiser NV (Consumer Goods and Services)* 6,200 $ 256,778
- ------------------------------------------------------------------------------------------------------
United Kingdom - 0.6%
Danka Business Systems, ADR (Business Services) 139,100 $ 2,216,906
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 10,767,928
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $322,500,058) $367,146,609
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 10.6%
- ------------------------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Corp., due 1/02/98 $ 8,500 $ 8,498,843
Federal Home Loan Mortgage Corp., due 1/12/98 - 1/30/98 18,000 17,938,685
Federal National Mortgage Assn., due 1/05/98 - 1/27/98 14,200 14,167,362
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 40,604,890
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $363,104,948) $407,751,499
Other Assets, Less Liabilities - (6.1)% (23,271,239
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $384,480,260
- ------------------------------------------------------------------------------------------------------
</TABLE>
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $363,104,948) $407,751,499
Cash 52,775
Receivable for Series shares sold 1,879,201
Receivable for investments sold 1,356,730
Interest and dividends receivable 65,646
Deferred organization expenses 4,710
Other assets 2,759
------------
Total assets $411,113,320
------------
Liabilities:
Payable for Series shares reacquired $ 738,669
Payable for investments purchased 25,705,265
Payable to affiliates -
Management fee 7,824
Shareholder servicing agent fee 388
Accrued expenses and other liabilities 180,914
------------
Total liabilities $ 26,633,060
------------
Net assets $384,480,260
============
Net assets consist of:
Paid-in capital $338,299,507
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 44,646,900
Accumulated undistributed net realized gain on investments
and foreign currency transactions 1,542,853
------------
Total $384,480,260
============
Shares of beneficial interest outstanding 23,832,859
==========
Net asset value, offering price, and redemption price per
share (net assets $384,480,260 / 23,832,859 shares of
beneficial interest outstanding) $16.13
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 902,537
Dividends 406,543
Foreign taxes withheld (6,310)
-----------
Total investment income $ 1,302,770
-----------
Expenses -
Management fee $ 1,887,980
Trustees' compensation 2,033
Shareholder servicing agent fee 88,426
Administrative fee 31,542
Custodian fee 75,103
Printing 66,616
Auditing fees 38,637
Amortization of organization expenses 1,837
Legal fees 1,182
Miscellaneous 2,500
-----------
Total expenses $ 2,195,856
Fees paid indirectly (4,979)
Reimbursement of expenses to investment adviser 78,621
-----------
Net expenses $ 2,269,498
-----------
Net investment loss $ (966,728)
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 5,465,067
Foreign currency transactions (75,933)
-----------
Net realized gain on investments and foreign
currency transactions $ 5,389,134
-----------
Change in unrealized appreciation -
Investments $42,662,701
Translation of assets and liabilities in foreign currency 349
-----------
Net unrealized gain on investments and foreign currency
translation $42,663,050
-----------
Net realized and unrealized gain on investments
and foreign currency $48,052,184
-----------
Increase in net assets from operations $47,085,456
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment loss $ (966,728) $ (31,458)
Net realized gain on investments and foreign currency
transactions 5,389,134 503,597
Net unrealized gain on investments and foreign currency
translation 42,663,050 1,810,131
------------ ------------
Increase in net assets from operations $ 47,085,456 $ 2,282,270
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign
currency transactions $ -- $ (503,597)
In excess of net realized gain on investments and
foreign currency transactions -- (374,343)
------------ ------------
Total distributions declared to shareholders $ -- $ (877,940)
------------ ------------
Net increase in net assets from Series share
transactions $232,438,500 $ 99,683,344
------------ ------------
Total increase in net assets $279,523,956 $101,087,674
Net assets:
At beginning of period 104,956,304 3,868,630
------------ ------------
At end of period (including accumulated net investment
loss of $0 and $0, respectively) $384,480,260 $104,956,304
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31, Period Ended
------------------------ December 31,
1997 1996 1995*
- ---------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 13.24 $ 11.41 $10.00
-------- -------- ------
Income from investment operations# -
Net investment income (loss)(S) $ (0.06) $ (0.01) $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions 2.95 1.95 1.74
-------- -------- ------
Total from investment operations $ 2.89 $ 1.94 $ 1.75
-------- -------- ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.01)
From net realized gain on investments and foreign
currency transactions -- (0.06) (0.26)
In excess of net realized gain on investments and
foreign currency transactions -- (0.05) --
From capital -- -- (0.07)
-------- -------- ------
Total distributions declared to shareholders $ -- $ (0.11) $(0.34)
-------- -------- ------
Net asset value - end of period $ 16.13 $ 13.24 $11.41
======== ======== ======
Total return 21.90% 17.02% 17.41%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.90% 1.00% 1.00%+
Net investment income (loss) (0.38)% (0.08)% 0.10%+
Portfolio turnover 112% 96% 73%
Average commission rate### $ 0.0616 $ 0.0401 $ --
Net assets at end of period (000 omitted) $384,480 $104,956 $3,869
*For the period from the commencement of the Series' investment operations, July 24, 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.
###Average commission rate is calculated for series with fiscal years beginning on or after
September 1, 1995.
(S)The investment adviser voluntarily agreed to maintain, subject to reimbursement by the Series,
the expenses of the Series at no more than 1.00% of average daily net assets. To the extent
actual expenses were over or under these limitations, the net investment loss per share and the
ratios would have been:
Net investment loss $(0.05) $(0.03) $(0.18)
Ratios (to average net assets):
Expenses## 0.87% 1.16% 2.91%+
Net investment loss (0.35)% (0.23)% (1.78)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Emerging Growth Series (the Series) is a diversified series of MFS
Variable Insurance Trust (the Trust) which comprises the following 12 series:
MFS(R) Bond Series, MFS 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) Research Series, MFS(R) Total Return Series, MFS(R) Utilities Series,
MFS(R) Value Series, and MFS(R) World Government Series. The Series 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 53 shareholders of 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 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
discounts are 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' 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 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, accumulated net investment
loss was decreased by $966,728, accumulated net realized gain on investments
was decreased by $3,425,303, and paid-in capital was increased by $2,458,575,
due to differences between book and tax accounting for net operating losses,
currency transactions and gains and losses from redemption in kind
transactions. This change had no effect on the net assets or net asset value
per share. At December 31, 1997, accumulated net realized gain on investments
and foreign currency transactions under book accounting were different from
tax accounting due to temporary differences in accounting for losses on wash
sale transactions.
(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 effective 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 December 31, 1997, the Series has paid MFS all of the expenses
owed.
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, MFS Fund
Distributors, Inc. (MFD), 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 purchased option transactions
and short-term obligations, aggregated $486,578,866 and $266,187,207,
respectively. In addition, investments having an aggregate market value of
$50,561,877 at date of redemption were distributed in payment of capital stock
redeemed for the year ended December 31, 1997, resulting in realized capital
gains, for book purposes, of $2,457,310.
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 $ 364,452,891
-------------
Gross unrealized appreciation $ 59,139,987
Gross unrealized depreciation (15,841,379)
-------------
Net unrealized appreciation $ 43,299,608
=============
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Series shares were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
----------------------------------- ----------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 30,029,411 $444,027,559 11,363,299 $149,594,616
Shares issued to shareholders in
reinvestment of distributions -- -- 66,160 877,940
Shares reacquired (14,125,232) (211,589,059) (3,839,801) (50,789,212)
----------- ------------ ---------- -------------
Net increase 15,904,179 $232,438,500 7,589,658 $ 99,683,344
=========== ============ =========== =============
</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 $1,789.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS
Emerging Growth Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Emerging Growth Series (the
Series) (one of the series constituting the MFS Variable Insurance Trust) as
of December 31, 1997, the related statement of operations for the year then
ended, the statements of changes in net assets for the two years then ended,
and the financial highlights for each of the years in the two-year period
ended December 31, 1997 and for the period from July 24, 1995, (the
commencement of investment operations) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's 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 and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Emerging
Growth Series at December 31, 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
VEG-2 2/98 61M
