<PAGE>
[logo] MFS(SM) Annual Report
INVESTMENT MANAGEMENT for Year Ended
December 31, 1997
MFS(R) GROWTH WITH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST SM
[graphic omitted]
<PAGE>
MFS(R) GROWTH WITH INCOME SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<TABLE>
<CAPTION>
<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 MANAGERS INVESTOR SERVICE
John D. Laupheimer, Jr.* MFS Service Center, Inc.
Kevin R. Parke* 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 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 and its response to both U.S. and world
events.
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 under question due to 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
<PAGE>
MFS GROWTH WITH INCOME SERIES
For the year ended December 31, 1997, the Series provided a total return of
29.78% (including the reinvestment of any distributions). This compares to a
33.36% return for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance. The Series'
underperformance versus the S&P 500 can be attributed to underperformance in
some of the Series' industrial goods and services stocks, a sector in which we
were slightly overweighted. While a number of these companies, such as Cooper
Industries, United Technologies, and Lockheed Martin, underperformed, we
believe the long-term outlook for these companies is favorable and continue to
hold large positions in them. On the positive side, the Series benefited from
a major overweighting in financial services, which was one of the best-
performing sectors of the market. In the S&P 500, this sector returned 50%,
while the Series' financial services stocks returned 57%. Some of our major
holdings in this sector performed very well, including Norwest Bank, US
Bancorp, Progressive Corp., Allstate, and State Street Bank. Although the
Series' technology weighting was less than 6% of the portfolio, compared with
a 12% weighting for this sector in the S&P 500, our technology stocks gained
over 40% for the year, while the S&P technology sector was up only 27%.
The Series' health care weighting was increased during the year because we
regard this industry as a good, steady growth part of the economy,
particularly the pharmaceutical companies, as opposed to the health-
maintenance or managed-care companies. The flow of products coming out of the
pharmaceutical business has accelerated, in part because of a renewed focus by
drug companies on product development. Also, there seems to be a greater
understanding by the Food and Drug Administration that the approval process
for these drugs has to be faster in order for them to benefit the public. The
growth rates of these companies have been quite strong. The Series' largest
holding is Bristol-Myers Squibb; we also have holdings in Pfizer, Johnson &
Johnson, and Novartis, a Swiss drug company.
The turmoil in emerging markets, particularly in Asia, has had no direct
effect on the Series because it had no holdings in those parts of the world.
However, we expect to see some effect on domestic companies with sales in
those regions. For example, the Series had a small holding in Oracle, a stock
that declined in December when the company announced that Japan was going to
be a difficult environment for it. We have begun analyzing what companies have
exposure in Asia and how much.
We see a continuation of the lower-inflation environment for 1998. The turmoil
in emerging markets will probably have a positive effect on both interest
rates and inflation here in the United States. In 1998, we anticipate that the
risk will not be valuations, but earnings, and we're trying to be very careful
that the companies in the portfolio are capable of making their earnings
estimates.
Respectfully,
/s/John D. Laupheimer, Jr. /s/ Kevin R. Parke
----------------------- ---------------------------
John D. Laupheimer, Jr. Kevin R. Parke
Portfolio Manager Portfolio Manager
PORTFOLIO MANAGERS' PROFILES
John D. Laupheimer, Jr., joined MFS in 1981 as an industry specialist and was
named Investment Officer in 1983, Assistant Vice President -- Investments in
1984, Vice President -- Investments in 1986, and Senior Vice President in 1995.
A graduate of Boston University and the Massachusetts Institute of Technology
Sloan School of Management, he has managed MFS Growth with Income
Series since its inception.
Kevin R. Parke joined the MFS Research Department in 1985 as an industry
specialist and was named Assistant Vice President -- Investments in 1987, Vice
President -- Investments in 1988, Senior Vice President in 1993, Director of
Equity Research in 1995, and Executive Vice President in 1997. A graduate of
Lehigh University and the Harvard University Graduate School of Business
Administration, he has managed the Series since its inception.
<PAGE>
OBJECTIVES AND POLICIES
The Series' investment objectives are to provide reasonable current income and
long-term growth of capital and income.
Commencement of investment operations: October 9, 1995
TAX FORM SUMMARY
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
The Series has designated $585,833 as a long-term capital gain.
DIVIDENDS-RECEIVED DEDUCTION
For the year ended December 31, 1997, the amount of distributions from income
eligible for the 70% dividends-received deductions for corporations came to
46.21%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Growth with
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 November 1, 1995, through December 31, 1997)
MFS S&P 500 Consumer
- -----------------------------------------------------
11/95 $10,000 $10,000 $10,000
6/96 11,969 11,714 10,191
12/96 13,406 13,083 10,319
6/97 15,812 15,779 10,429
12/97 17,399 17,448 10,540
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
- --------------------------------------------------------------------------
MFS Growth with Income Series +29.78% +27.61%
- --------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +33.36% +28.15%
- --------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.54%
- --------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
October 9, 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
<TABLE>
<CAPTION>
Stocks - 89.4%
- --------------------------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 82.9%
Aerospace - 3.9%
<S> <C> <C>
Allied Signal, Inc. 11,760 $ 457,905
General Dynamics Corp. 1,830 158,180
Lockheed Martin Corp. 7,692 757,662
Raytheon Co. 2,100 106,050
United Technologies Corp. 11,100 808,219
------------
$ 2,288,016
- --------------------------------------------------------------------------------------------------------
Agricultural Products - 0.5%
Case Corp. 4,900 $ 296,144
- --------------------------------------------------------------------------------------------------------
Apparel and Textiles - 0.8%
Reebok International Ltd.* 1,600 $ 46,100
VF Corp. 8,600 395,063
------------
$ 441,163
- --------------------------------------------------------------------------------------------------------
Automotive - 0.3%
Goodrich (BF) Co. 4,800 $ 198,900
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 9.0%
Bank of New York, Inc. 1,300 $ 75,156
Chase Manhattan Corp. 1,100 120,450
Comerica, Inc. 5,900 532,475
Firstar Corp. 8,300 352,231
Fleet Financial Group, Inc. 500 37,469
National City Corp. 6,500 427,375
Northern Trust Co. 4,000 279,000
Norwest Corp. 29,500 1,139,437
State Street Corp. 9,800 570,237
SunTrust Banks, Inc. 4,500 321,188
US Bancorp 9,783 1,095,085
Washington Mutual, Inc. 4,600 293,538
------------
$ 5,243,641
- --------------------------------------------------------------------------------------------------------
Building - 0.6%
American Standard Cos., Inc.* 900 $ 34,481
Sherwin Williams Co. 11,600 321,900
------------
$ 356,381
- --------------------------------------------------------------------------------------------------------
Business Machines - 1.2%
International Business Machines Corp. 5,680 $ 593,915
Sun Microsystems, Inc.* 2,400 95,700
------------
$ 689,615
- --------------------------------------------------------------------------------------------------------
Business Services - 2.0%
Cendant Corp.* 7,930 $ 272,594
Computer Sciences Corp.* 5,300 442,550
DST Systems, Inc.* 3,600 153,675
First Data Corp. 10,000 292,500
------------
$ 1,161,319
- --------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.2%
AirTouch Communications, Inc.* 2,100 $ 87,281
- --------------------------------------------------------------------------------------------------------
Chemicals - 3.0%
Air Products & Chemicals, Inc. 10,260 $ 843,885
DuPont (E.I.) de Nemours & Co., Inc. 9,400 564,587
Praxair, Inc. 6,800 306,000
------------
$ 1,714,472
- --------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.3%
Compaq Computer Corp. 2,400 $ 135,450
Microsoft Corp.* 4,600 594,550
------------
$ 730,000
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.6%
BMC Software, Inc.* 2,030 $ 133,219
Computer Associates International, Inc. 12,575 664,903
Oracle Corp.* 6,450 143,915
------------
$ 942,037
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 7.0%
Clorox Co. 1,200 $ 94,875
Colgate-Palmolive Co. 9,500 698,250
Gillette Co. 8,450 848,697
Philip Morris Cos., Inc. 21,500 974,219
Procter & Gamble Co. 4,800 383,100
Service Corp. International 11,900 439,556
Tyco International Ltd. 14,000 630,875
------------
$ 4,069,572
- --------------------------------------------------------------------------------------------------------
Containers - 0.1%
Corning, Inc. 1,800 $ 66,825
- --------------------------------------------------------------------------------------------------------
Defense Electronics - 0.1%
Loral Space & Communications Corp.* 2,100 $ 45,019
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 3.2%
Cooper Industries, Inc. 11,600 $ 568,400
General Electric Co. 8,600 631,025
Honeywell, Inc. 9,730 666,505
------------
$ 1,865,930
- --------------------------------------------------------------------------------------------------------
Electronics - 0.2%
Intel Corp. 1,500 $ 105,375
- --------------------------------------------------------------------------------------------------------
Entertainment - 0.8%
Time Warner, Inc. 3,200 $ 198,400
Viacom, Inc., "B"* 3,100 128,456
Houston Industries, Inc. 2,300 131,244
------------
$ 458,100
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 3.6%
American Express Co. 2,300 $ 205,275
Beneficial Corp. 6,350 527,844
CIT Group, Inc., "A"* 7,000 225,750
Federal Home Loan Mortgage Corp. 8,100 339,694
Household International, Inc. 4,300 548,518
Merrill Lynch & Co., Inc. 3,600 262,575
------------
$ 2,109,656
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.5%
Archer-Daniels-Midland Co. 5,990 $ 129,908
Coca-Cola Co. 1,800 119,925
CPC International, Inc. 3,000 323,250
General Mills, Inc. 1,900 136,088
Hershey Foods Corp. 1,500 92,906
Interstate Bakeries Corp. 3,100 115,863
McCormick & Co., Inc. 3,180 89,040
Nabisco Holdings Corp. 2,070 100,266
PepsiCo., Inc. 6,200 225,912
Ralston-Purina Co. 4,250 394,984
Tyson Foods, Inc., "A" 4,900 100,450
Wrigley (William) Junior Co. 2,600 206,862
------------
$ 2,035,454
- --------------------------------------------------------------------------------------------------------
Forest and Paper Products - 1.4%
Kimberly-Clark Corp. 12,760 $ 629,227
Weyerhaeuser Co. 3,400 166,813
------------
$ 796,040
- --------------------------------------------------------------------------------------------------------
Insurance - 9.4%
AFLAC, Inc. 4,100 $ 209,613
Allstate Corp. 8,000 727,000
Chubb Corp. 8,100 612,562
CIGNA Corp. 4,345 751,957
Conseco, Inc. 1,900 86,331
Hartford Financial Services Group, Inc. 9,040 845,805
Lincoln National Corp. 2,700 210,937
MBIA, Inc. 2,540 169,704
Progressive Corp. Ohio 5,700 683,287
Torchmark Corp. 14,300 601,494
Transamerica Corp. 1,800 191,700
Travelers Group, Inc. 6,999 377,044
------------
$ 5,467,434
- --------------------------------------------------------------------------------------------------------
Machinery - 0.7%
Deere & Co., Inc. 1,900 $ 110,794
Ingersoll Rand Co. 5,350 216,675
York International Corp. 2,700 106,819
------------
$ 434,288
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 6.6%
American Home Products Corp. 700 $ 53,550
Bristol-Myers Squibb Co. 17,460 1,652,152
Eli Lilly & Co. 4,500 313,313
Johnson & Johnson 7,100 467,713
McKesson Corp. 2,000 216,375
Merck & Co., Inc. 1,700 180,625
Pfizer, Inc. 7,300 544,306
Pharmacia & Upjohn, Inc. 1,600 58,600
Warner-Lambert Co. 2,799 347,076
------------
$ 3,833,710
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.8%
Cardinal Health, Inc. 1,300 $ 97,663
Columbia/HCA Healthcare Corp. 4,900 145,162
Fresenius National Medical Care, Inc.* 100 7
HEALTHSOUTH Corp.* 5,000 138,750
Medtronic, Inc. 1,900 99,394
St. Jude Medical, Inc.* 3,600 109,800
Tenet Healthcare Corp.* 13,700 453,812
United Healthcare Corp. 11,180 555,506
------------
$ 1,600,094
- --------------------------------------------------------------------------------------------------------
Metals and Minerals - 0.2%
Phelps Dodge Corp. 2,200 $ 136,950
- --------------------------------------------------------------------------------------------------------
Oils - 3.3%
Chevron Corp. 3,900 $ 300,300
Exxon Corp. 9,400 575,162
Mobil Corp. 7,450 537,797
Texaco, Inc. 5,540 301,238
USX-Marathon Group 6,300 212,625
------------
$ 1,927,122
- --------------------------------------------------------------------------------------------------------
Pollution Control - 1.1%
Browning Ferris Industries, Inc. 9,000 $ 333,000
Waste Management, Inc. 10,100 277,750
------------
$ 610,750
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.5%
Gannett Co., Inc. 6,100 $ 377,056
Tribune Co. 8,200 510,450
------------
$ 887,506
- --------------------------------------------------------------------------------------------------------
Railroads - 1.4%
Burlington Northern Santa Fe Railway Co. 7,000 $ 650,563
CSX Corp. 2,700 145,800
------------
$ 796,363
- --------------------------------------------------------------------------------------------------------
Stores - 3.6%
CVS Corp. 3,700 $ 237,031
Home Depot, Inc. 6,500 382,687
Liz Claiborne, Inc. 3,600 150,525
Office Depot, Inc.* 5,400 129,262
Penney (J.C.), Inc. 10,300 621,219
Rite Aid Corp. 5,700 334,519
Wal-Mart Stores, Inc. 5,300 209,019
------------
$ 2,064,262
- --------------------------------------------------------------------------------------------------------
Supermarkets - 1.4%
Kroger Co.* 5,960 $ 220,148
Safeway, Inc.* 8,912 563,684
------------
$ 783,832
- --------------------------------------------------------------------------------------------------------
Telecommunications - 0.8%
AT&T Corp. 5,600 $ 343,000
Cisco Systems, Inc.* 2,550 142,163
------------
$ 485,163
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.3%
Cinergy Corp. 6,600 $ 252,862
CMS Energy Corp. 1,800 79,313
DPL, Inc. 1,900 54,625
Duke Energy Corp. 2,575 142,591
Edison International 2,800 76,125
FPL Group, Inc. 3,900 230,831
New Century Energies, Inc. 1,800 86,287
Pacificorp 13,400 365,987
Pinnacle West Capital Corp. 1,700 72,038
------------
$ 1,360,659
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.4%
Columbia Gas System, Inc. 1,150 $ 90,347
KN Energy, Inc. 1,300 70,200
Pacific Enterprises 1,800 67,725
------------
$ 228,272
- --------------------------------------------------------------------------------------------------------
Utilities - Telephone - 3.1%
BellSouth Corp. 4,300 $ 242,144
GTE Corp. 3,950 206,388
MCI Communications Corp. 12,100 518,031
SBC Communications, Inc. 3,700 271,025
Sprint Corp. 9,300 545,212
------------
$ 1,782,800
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 48,100,145
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 6.5%
Canada - 0.6%
Canadian National Railway Co. (Railroads) 7,900 $ 373,275
- --------------------------------------------------------------------------------------------------------
France - 0.6%
Sanofi (Medical and Health Products) 1,400 $ 155,917
Alcatel Alsthom, ADR (Telecommunications) 7,100 179,719
------------
$ 335,636
- --------------------------------------------------------------------------------------------------------
Germany - 0.3%
Henkel Kgaa (Chemicals) 2,800 $ 176,850
- --------------------------------------------------------------------------------------------------------
Netherlands - 1.0%
Akzo Nobel N.V. (Chemicals) 2,300 $ 396,920
Royal Dutch Petroleum Co., ADR (Oils) 2,900 157,144
------------
$ 554,064
- --------------------------------------------------------------------------------------------------------
Sweden - 0.7%
Skandia Forsakrings AB (Insurance) 7,200 $ 340,025
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 3,800 86,495
------------
$ 426,520
- --------------------------------------------------------------------------------------------------------
Switzerland - 0.9%
Novartis AG (Pharmaceuticals) 330 $ 536,383
- --------------------------------------------------------------------------------------------------------
United Kingdom - 2.4%
British Petroleum PLC, ADR (Oils) 11,369 $ 905,967
Lloyds TSB Group PLC (Banks and Credit Cos.)* 18,968 247,141
PowerGen PLC (Utilities-Electric)* 17,979 234,238
------------
$ 1,387,346
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 3,790,074
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $46,634,340) $ 51,890,219
- --------------------------------------------------------------------------------------------------------
Convertible Bond - 0.1%
- --------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------------------------------
Sandoz Capital BVI Ltd., 2s, 2002 (Chemicals)##,
(Identified Cost $27,400) $ 20 $ 30,700
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.2%
- --------------------------------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 0.2%
Consumer Goods and Services - 0.2%
Newell Financial Trust Co., (Industrial)##*,
(Identified Cost, $135,000) 2,700 $ 140,738
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.8%
- --------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/98, at Amortized
Cost $5,100 $ 5,099,327
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $51,896,067) $ 57,160,984
Other Assets, Less Liabilities - 1.5% 884,086
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 58,045,070
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $51,896,067) $57,160,984
Cash 82,844
Receivable for Series shares sold 918,417
Interest and dividends receivable 74,805
Deferred organization expenses 5,087
Other assets 81
-----------
Total assets $58,242,218
------------
Liabilities:
Payable for Series shares reacquired $ 193,723
Payable to affiliate for management fee 1,175
Accrued expenses and other liabilities 2,250
-----------
Total liabilities $ 197,148
-----------
Net assets $58,045,070
===========
Net assets consist of:
Paid-in capital $52,936,361
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 5,264,852
Accumulated distributions in excess of net realized gain on
investments and foreign
currency transactions (156,143)
------------
Total $58,045,070
===========
Shares of beneficial interest outstanding 3,530,696
=========
Net asset value per share
(net assets of $58,045,070 / 3,530,696 shares of beneficial
interest outstanding) $16.44
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended December 31, 1997
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 391,447
Interest 97,306
Foreign taxes withheld (3,093)
----------
Total investment income $ 485,660
----------
Expenses -
Management fee $ 188,365
Administrative fee 3,085
Trustees' compensation 2,033
Shareholder servicing agent fee 8,762
Printing 30,580
Auditing fee 28,561
Custodian fee 14,295
Amortization of organization expenses 1,837
Legal fee 1,482
----------
Total expenses $ 279,000
Fees paid indirectly (925)
Reduction of expenses by investment adviser (26,920)
----------
Net expenses $ 251,155
----------
Net investment income $ 234,505
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 963,780
Foreign currency transactions (982)
----------
Net realized gain on investments and foreign
currency transactions $ 962,798
----------
Change in unrealized appreciation (depreciation) -
Investments $4,430,109
Translation of assets and liabilities in foreign currencies (71)
----------
Net unrealized gain on investments and foreign currency
translation $4,430,038
----------
Net realized and unrealized gain on investments
and foreign currency $5,392,836
----------
Increase in net assets from operations $5,627,341
==========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
<S> <C> <C>
Net investment income $ 234,505 $ 61,789
Net realized gain on investments and foreign currency
transactions 962,798 85,828
Net unrealized gain on investments and foreign currency
translation 4,430,038 814,062
----------- ----------
Increase in net assets from operations $ 5,627,341 $ 961,679
----------- ----------
Distributions declared to shareholders -
From net investment income $ (236,004) $ (60,288)
From net realized gain on investments and foreign currency
transactions (962,798) (85,828)
In excess of net investment income (501) --
In excess of net realized gain on investments and foreign
currency transactions (143,538) (10,368)
----------- ----------
Total distributions declared to shareholders $(1,342,841) $ (156,484)
----------- ----------
Net increase in net assets from Series share transactions $44,586,457 $8,004,095
----------- ----------
Total increase in net assets $48,870,957 $8,809,290
Net assets:
At beginning of period 9,174,113 364,823
----------- ----------
At end of period (including undistributed net investment
income of $0 and $1,499, respectively) $58,045,070 $9,174,113
=========== ==========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
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 $12.98 $10.61 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.16 $ 0.18 $ 0.05
Net realized and unrealized gain on investments and
foreign currency transactions 3.70 2.42 0.61
------ ------ ------
Total from investment operations $ 3.86 $ 2.60 $ 0.66
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.07) $(0.09) $(0.05)
From net realized gain on investments and foreign
currency transactions (0.29) (0.13) --
In excess of net realized gain on investments and
foreign currency transactions (0.04) (0.01) --
------ ------ ------
Total distributions declared to shareholders $(0.40) $(0.23) $(0.05)
------ ------ ------
Net asset value - end of period $16.44 $12.98 $10.61
====== ====== ======
Total return 29.78% 24.46% 6.64%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00% 1.00%+
Net investment income 0.93% 1.52% 2.20%+
Portfolio turnover 42% 41% 2%
Average commission rate###
$0.0455 $0.0351 --
Net assets at end of period (000 omitted) $58,045 $ 9,174 $ 365
*For the period from the commencement of the Series' investment operations, October 9, 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 Adviser voluntarily agreed to maintain the expenses of the Series at not more than 1.00% of
average daily net assets. To the extent actual expenses were over these limitations, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $ 0.13 $ 0.05 $(0.41)
Ratios (to average net assets):
Expenses## 1.10% 2.07% 21.44%+
Net investment income (loss) 0.82% 0.46% (18.24)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Growth with Income Series (the Series) is a diversified series of MFS
Variable Insurance Trust (the Trust) which is comprised of the following 12
series: MFS(R) Bond Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign &
Colonial Emerging Markets Equity Series, MFS 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 25 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 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. Debt securities (other than short-term obligations which mature in
60 days or less), including listed issues and forward contracts, 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. Securities for which there are no such quotations or valuations are
valued at fair value as determined in good faith by or at the direction of the
Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Forward Foreign Currency Exchange Contracts - The Series may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Series will enter into
forward contracts for hedging purposes as well as for nonhedging purposes. For
hedging purposes, the Series may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The Series may also use contracts in a manner intended to protect
foreign-currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For nonhedging purposes, the Series may
enter into contracts with the intent of changing the relative exposure of the
Series' portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
contract settlement date. On contract settlement date the gains or losses are
recorded as realized gains or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue 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.
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 distributions in
excess of net investment income was decreased by $501, accumulated
distributions in excess of net realized gain on investments was increased by
$2,184, and paid in capital was increased by $1,683 due to differences between
book and tax accounting for currency 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 aggregate unreimbursed expenses owed to
MFS by the Series amounted to $85,624.
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 percentage 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 $48,687,816 and $9,921,926,
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 $52,030,294
-----------
Gross unrealized appreciation $ 6,084,282
Gross unrealized depreciation (953,592)
-----------
Net unrealized appreciation $ 5,130,690
===========
(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 3,352,466 $52,088,626 720,635 $8,604,219
Shares issued to shareholders in
reinvestment of distributions 83,407 1,342,851 11,899 156,483
Shares reacquired (611,729) (8,845,020) (60,384) (756,607)
--------- ----------- ------- ----------
Net increase 2,824,144 $44,586,457 672,150 $8,004,095
========= =========== ======= ==========
</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 $195.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Growth
with Income Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Growth with Income 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 financial
highlights for the two years ended December 31, 1997, and the period from
October 9, 1995 (the commencement of investment operations) to December 31,
1995. 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 Growth with
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)198 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VGI-2 2/98 28.3M
