<PAGE>
[LOGO] M F S(SM)
INVESTMENT MANAGEMENT Annual Report
for Year Ended
December 31, 1997
MFS(R) BOND SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
[Graphic Omitted]
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MFS(R) BOND SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Nelson J. Darling, Jr. Massachusetts Financial Services Company
Trustee, Eastern Enterprises 500 Boylston Street
(diversified holding company) Boston, MA 02116-3741
William R. Gutow DISTRIBUTOR
Vice Chairman, MFS Fund Distributors, Inc.
Capitol Entertainment Management Company 500 Boylston Street
(Blockbuster Video franchise) Boston, MA 02116-3741
PORTFOLIO MANAGER INVESTOR SERVICE
Geoffrey L. Kurinsky* MFS Service Center, Inc.
P.O. Box 2281
TREASURER Boston, MA 02107-9906
W. Thomas London*
For additional information,
ASSISTANT TREASURERS contact your financial adviser.
Mark E. Bradley*
Ellen Moynihan* CUSTODIAN
James O. Yost* State Street Bank and Trust Company
SECRETARY AUDITORS
Stephen E. Cavan* Deloitte & Touche LLP
ASSISTANT SECRETARY WORLD WIDE WEB
James R. Bordewick, Jr.* www.mfs.com
[logo 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 (the Fed) and its response to both U.S.
and world events.
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under severe
pressure. Inflation remains under control, and the Fed will most likely take a
wait-and-see attitude toward raising interest rates. As a result, our near-
term outlook for high-grade markets is neutral to moderately positive. At the
same time, high-yield markets, having gone through a substantial correction,
could offer reasonable value but require careful selection. Overall, fixed-
income markets appear to be reasonably valued.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
President, MFS Investment Management
January 12, 1998
<PAGE>
MFS BOND SERIES
For the year ended December 31, 1997, the Series provided a total return of
10.14% (including the reinvestment of any distributions). This compares to a
9.76% return for the Lehman Brothers Government/Corporate Bond Index, an
unmanaged, market-value-weighted index of all debt obligations of the U.S.
Treasury and government agencies (excluding mortgage-backed securities) and of
all publicly issued fixed-rate, nonconvertible, investment-grade domestic
corporate debt.
The sharp decline in interest rates in 1997 benefited the Series, as did the
Series' significant exposure to credits that are in the process of crossing
from high-yield to investment-grade status, such as Cleveland Electric and
U.S. Gypsum. In general, we have seen strong returns for U.S. fixed-income
markets, as prospects for continued steady economic growth and low inflation
have sparked a rally in this arena. Rates on 10-year U.S. Treasuries fell
almost a full percentage point, from 6.50% to 5.75%, during 1997, primarily
due to positive inflation data, which changed the markets' previous perception
that the Fed would have to raise interest rates. The U.S. bond market is also
receiving flight capital from Asian markets. We believe the Fed will most
likely take a wait-and-see attitude toward raising rates, especially given the
market sell-off in the Pacific Rim, which could slow the pace of economic
growth globally. We also believe interest rates could continue moving
gradually lower as the inflation figures continue to decline.
In this environment, we have had a lower percentage of assets in the
investment-grade and high-yield corporate sectors compared to the Series' peer
group, given our concern that a glut of supply and further disarray in Asia
could result in a widening of interest-rate spreads in these sectors.
Among industry sectors, the Series' largest current holdings are in utility
companies such as Long Island Lighting and Cleveland Electric, both of which
we believe will soon be upgraded to investment-grade status. We are also
overweighted in the media and cable sectors, which continue to reflect
improving credit profiles.
At 6.2 years, the Series' duration, or interest-rate sensitivity, reflects
what we see as a potential for slightly lower interest rates. The normal
duration for the Series is 6.0 years, which is the average for the funds in
the Lipper "BBB"-rated bond fund category.
Looking ahead, we believe the forces of economic growth and low inflation will
keep interest rates moving lower from current levels. The recent collapse of
markets in Southeast Asia suggests a moderation of both global growth and
inflation expectations, but just how much of an impact these events will have
on U.S. growth and earnings remains debatable. They do, though, suggest that
the Fed will keep rates stable or move them lower as we move into 1998 and
officials evaluate the impact on the U.S. economy.
Respectfully,
/s/ Geoffrey L. Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
Geoffrey L. Kurinsky began his career at MFS in 1987 in the Fixed Income
Department and was named Assistant Vice President in 1988, Vice President in
1989, and Senior Vice President in 1993. A graduate of the University of
Massachusetts and the Boston University Graduate School of Management, he has
managed MFS Bond Series since 1995.
OBJECTIVES AND POLICIES
The Series' primary investment objective is to provide as high a level of
current income as is believed to be consistent with prudent investment risk.
The Series' secondary objective is to protect shareholders' capital.
Commencement of investment operations: October 24, 1995
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Bond
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)
Lehman
Brothers
Government/ Consumer
MFS Bond Corporate Price Index
Series - VIT Bond Index - U.S.
11/95 $10,000 $10,000 $10,000
6/96 9,987 10,120 10,191
12/96 10,516 10,614 10,319
6/97 10,819 10,904 10,429
12/97 11,582 11,649 10,540
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
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MFS Bond Series +10.14% +6.94%
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Lehman Brothers Government/Corporate Bond Index# + 9.76% +7.94%
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Consumer Price Index#+ + 2.15% +2.58%
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* For the period from the commencement of the Series' investment operations,
October 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.
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PORTFOLIO OF INVESTMENTS - December 31, 1997
Bonds - 82.3%
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Principal Amount
Issuer (000 Omitted) Value
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U.S. Bonds - 80.1%
Airlines - 3.0%
Continental Airlines, Inc., 9.5s, 2001 $ 15 $ 16,201
Delta Air Lines, Inc., 8.5s, 2002 80 85,366
Jet Equipment Trust, 8.64s, 2012## 5 5,348
Jet Equipment Trust, 9.41s, 2010## 5 5,981
United Airlines Pass-Through Trust, 7.27s, 2013 5 5,154
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$ 118,050
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Automotive - 0.4%
Ford Motor Co., 7.7s, 2097 $ 15 $ 16,482
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Banks and Credit Companies - 2.8%
Advanta Corp., 6.925s, 2002 $ 5 $ 4,703
Capital One Financial Corp., 7.25s, 2003 10 10,088
MBNA Capital, 8.278s, 2026 35 36,612
Riggs National Corp., 8.5s, 2006 5 5,244
Washington Mutual Capital I, 8.375s, 2027 50 55,119
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$ 111,766
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Cellular Telephones - 0.1%
U.S. Cellular Corp., 7.25s, 2007 $ 5 $ 5,106
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Chemicals - 0.6%
Solutia Inc., 7.375s, 2027 $ 25 $ 25,666
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Construction Services - 1.4%
Georgia Pacific Corp., 9.5s, 2022 $ 50 $ 56,301
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Consumer Goods and Services - 0.1%
Philip Morris Cos., Inc., 7.75s, 2027 $ 5 $ 5,400
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Entertainment - 2.2%
Circus Circus Enterprises, Inc., 7s, 2036 $ 10 $ 10,225
Hearst Argyle Television, Inc., 7.5s, 2027 15 15,453
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 45 44,092
Time Warner, Inc., 9.125s, 2013 10 11,908
Time Warner, Inc., 9.15s, 2023 5 6,160
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$ 87,838
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Financial Institutions - 5.7%
APP International Finance Co., 10.25s, 2000 $ 20 $ 18,800
Bear Stearns, Inc., 6.75s, 2007 100 100,786
Contifinancial Corp., 7.5s, 2002 63 61,661
Dynex Capital, Inc., 7.875s, 2002 5 5,062
First Empire Capital Trust I, 8.234s, 2027 5 5,384
Lehman Brothers, Inc., 7.5s, 2026 10 10,584
MBNA Corp., 6.963s, 2002## 10 10,163
Nationwide Mutual Life Insurance Co., 7.5s, 2024## 10 10,083
Salton Sea Funding Corp., 7.84s, 2010 5 5,325
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$ 227,848
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Forest and Paper Products - 0.3%
Boise Cascade Co., 7.43s, 2005 $ 10 $ 10,477
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Insurance - 0.7%
Conseco Finance Trust III, 8.796s, 2027 $ 5 $ 5,648
Safeco Capital Trust I, 8.072s, 2037## 10 10,446
Travelers Capital III, 7.75s, 2036 10 10,370
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$ 26,464
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Media - 0.3%
News America Holdings, Inc., 7.75s, 2045 $ 5 $ 5,177
News America Holdings, Inc., 8s, 2016 5 5,367
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$ 10,544
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Medical and Health Technology and Services - 0.3%
Tenet Healthcare Corp., 8s, 2005 $ 5 $ 5,088
Tenet Healthcare Corp., 10.125s, 2005 5 5,462
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$ 10,550
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Oil Services - 0.1%
Ultramar Diamond Shamrock Corp., 7.2s, 2017 $ 5 $ 5,135
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Oils - 1.6%
Chesapeake Energy Corp., 7.875s, 2004## $ 18 $ 17,685
Enserch Exploration, Inc., 7.54s, 2009## 5 5,015
Gulf Canada, 9.25s, 2004 5 5,273
Lasmo USA, Inc., 7.3s, 2027 12 12,255
Oryx Energy Co., 8.375s, 2004 10 10,784
Transocean Offshore, Inc., 8s, 2027 10 11,310
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$ 62,322
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Precious Metals and Minerals - 0.1%
Freeport McMoRan Copper & Gold, Inc., 7.5s, 2006 $ 3 $ 2,551
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Restaurants and Lodging - 0.2%
Hilton Hotels Corp., 7.95s, 2007 $ 3 $ 3,182
Mirage Resorts, Inc., 6.75s, 2007 5 4,985
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$ 8,167
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Special Products and Services - 1.2%
Federal Express Corp., 7.65s, 2014 $ 40 $ 42,743
Loewen Group, Inc. Pass-Through Ctf., 6.7s, 1999## 5 4,974
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$ 47,717
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Telecommunications - 4.1%
Continental Cablevision, Inc., 8.3s, 2006 $ 5 $ 5,457
Continental Cablevision, Inc., 11s, 2007 50 55,518
TCI Communications Financing III, 9.65s, 2027 5 5,853
Tele-Communications, Inc., 7.385s, 2001 70 71,664
Tele-Communications, Inc., 8.25s, 2003 5 5,339
WorldCom, Inc., 7.75s, 2007 15 16,242
WorldCom, Inc., 8.875s, 2006 5 5,380
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$ 165,453
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Textiles - 0.1%
Burlington Industries, Inc. New, 7.25s, 2027 $ 5 $ 5,256
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Utilities - Electric - 5.5%
Cleveland Electric Illuminating Co., 7.88s, 2017## $ 10 $ 10,557
Commonwealth Edison Co., 6.4s, 2005 20 19,587
Commonwealth Edison Co., 7.625s, 2007 5 5,277
First PV Funding Corp., 10.3s, 2014 5 5,406
Long Island Lighting Co., 8.9s, 2019 5 5,320
Long Island Lighting Co., 9s, 2022 50 55,829
Midland Cogeneration Venture Corp., 10.33s, 2002 13 13,500
Niagara Mohawk Power Corp., 8.5s, 2023 10 10,697
Niagara Mohawk Power Corp., 8.77s, 2018 40 43,057
Northrup Grumman Corp., 9.375s, 2024 5 5,799
Southern Co. Capital Trust, 8.19s, 2037## 2 2,114
Texas & New Mexico Power Co., 12.5s, 1999 5 5,281
Texas Utilities Electric Co., 7.17s, 2007 10 10,404
Waterford 3 Funding Corp., 8.09s, 2017 25 26,133
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$ 218,961
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Utilities - Gas - 2.7%
California Energy, Inc., 10.25s, 2004 $ 5 $ 5,452
Texas Gas Transmission Corp., 7.25s, 2027 100 104,047
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$ 109,499
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U.S. Federal Agencies - 4.5%
FNMA, 7s, 2012 $ 178 $ 180,259
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U.S. Government Guaranteed - 5.0%
GNMA, 7.5s, 2027 $ 186 $ 190,599
GNMA, 8s, 2025 10 10,437
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$ 201,036
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U.S. Treasury Obligations - 37.1%
U.S. Treasury Bonds, 6.125s, 2027 $ 5 $ 5,138
U.S. Treasury Bonds, 6.375s, 2027 511 538,947
U.S. Treasury Bonds, 6.625s, 2027 79 85,764
U.S. Treasury Bonds, 7.625s, 2025 6 7,281
U.S. Treasury Notes, 5.625s, 2002 600 597,750
U.S. Treasury Notes, 6s, 1999 10 10,048
U.S. Treasury Notes, 6.125s, 2007 22 22,609
U.S. Treasury Notes, 6.25s, 2002 20 20,410
U.S. Treasury Notes, 6.5s, 2005 61 63,851
U.S. Treasury Notes, 6.875s, 2006 40 42,800
U.S. Treasury Notes, 7s, 2006 36 38,857
U.S. Treasury Notes, 7.25s, 2004 45 48,565
U.S. Treasury Notes, 9.125s, 1999 5 5,224
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$ 1,487,244
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Total U.S. Bonds $ 3,206,092
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Foreign Bonds - 2.2%
Argentina - 0.5%
Hidroelectrica Alicura, 8.375s, 1999## $ 20 $ 19,800
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Finland - 0.1%
Upm Kymmene Corp., 7.45s, 2027## $ 5 $ 5,041
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Indonesia - 0.8%
PT Indah Kiat Pulp & Paper Corp., 8.875s, 2000## $ 20 $ 17,779
PT Polysindo Eka Perkasa, 13s, 2001 15 13,650
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$ 31,429
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Panama - 0.2%
Republic of Panama, 7.875s, 2002## $ 10 $ 9,687
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Spain - 0.1%
Empresa Nacional De Electric, 7.325s, 2037 $ 5 $ 5,049
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Uruguay - 0.5%
Banco Commercial Sa, 8.25s, 2007 $ 20 $ 19,374
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Total Foreign Bonds $ 90,380
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Total Bonds (Identified Cost, $3,238,878) $ 3,296,472
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Short-Term Obligation - 30.0%
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Federal Home Loan Bank Corp., due 1/02/98, at
Amortized Cost and Value $1,200 $ 1,199,841
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Total Investments (Identified Cost, $4,438,719) $ 4,496,313
Other Assets, Less Liabilities - (12.3)% (492,759)
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Net Assets - 100.0% $ 4,003,554
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## SEC Rule 144A restriction.
See notes to financial statements
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FINANCIAL STATEMENTS
Statement of Assets and Liabilities
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December 31, 1997
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Assets:
Investments, at value (identified cost, $4,438,719) $ 4,496,313
Cash 12,124
Receivable for Series shares sold 53,852
Interest receivable 49,843
Deferred organization expenses 6,105
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Total assets $ 4,618,237
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Liabilities:
Payable for Series shares reacquired $ 11,544
Payable for investments purchased 597,937
Payable to affiliate
Management fee 65
Administative fee 340
Transfer agent fee 4
Accrued expenses and other liabilities 4,793
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Total liabilities $ 614,683
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Net assets $ 4,003,554
===========
Net assets consist of:
Paid-in capital $ 3,739,359
Unrealized appreciation on investments 57,594
Accumulated undistributed net realized gain on investments 68,069
Accumulated undistributed net investment income 138,532
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Total $ 4,003,554
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Shares of beneficial interest outstanding 361,236
=======
Net asset value price per share
(net assets of $4,003,554 / 361,236 shares of beneficial
interest outstanding) $11.08
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
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Year Ended December 31, 1997
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Net investment income:
Interest income $ 161,600
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Expenses -
Management fee $ 13,699
Administrative fee 287
Trustees' compensation 2,373
Shareholder servicing agent fee 801
Custodian fee 19,793
Printing 14,920
Auditing fee 26,501
Amortization of organization expenses 1,837
Legal fee 1,478
Miscellaneous 543
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Total expenses $ 82,232
Fees paid indirectly (337)
Reduction of expenses by investment adviser (59,063)
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Net expenses $ 22,832
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Net investment income $ 138,768
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Realized and unrealized gain on investments:
Realized gain on investment transactions (identified cost basis) $ 71,311
Change in unrealized appreciation on investments 51,317
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Net realized and unrealized gain on investments $ 122,628
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Increase in net assets from operations $ 261,396
==========
See notes to financial statements
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FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
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Year Ended December 31,
----------------------------
1997 1996
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Increase (decrease) in net assets:
From operations -
Net investment income $ 138,768 $ 28,318
Net realized gain (loss) on investments 71,311 (3,478)
Net unrealized gain on investments 51,317 2,384
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Increase in net assets from operations $ 261,396 $ 27,224
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Distributions declared to shareholders -
From net investment income $ -- $(28,266)
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Increase in net assets from Series share
transactions $2,888,957 $626,308
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Total increase in net assets $3,150,353 $625,266
Net assets:
At beginning of year 853,201 227,935
---------- --------
At end of year (including accumulated
undistributed net investment income
of $139,010 and $242, respectively) $4,003,554 $853,201
========== ========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
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Year Ended December 31,
--------------------------------------------
1997 1996 1995***
------ ------ ------
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Per share data (for a share outstanding throughout each period):
Net asset value -
beginning of period $10.06 $10.19 $10.00
------ ------ ------
Income from investment
operations# -
Net investment income(S) $ 0.64 $ 0.58 $ 0.09
Net realized and
unrealized gain on
investments and
foreign currency
transactions 0.38 (0.36) 0.21
------ ------ ------
Total from investment
operations $ 1.02 $ 0.22 $ 0.30
------ ------ ------
Less distributions
declared to
shareholders -
From net investment income $ -- $(0.35) $(0.09)
From net realized gain on
investments and foreign
currency transactions -- -- (0.02)
------ ------ ------
Total distributions
declared to shareholders $ 0.00 $(0.35) $(0.11)
------ ------ ------
Net asset value - end of period $11.08 $10.06 $10.19
====== ====== ======
Total return 10.14% 2.09% 3.02%**
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.00% 1.00% 1.00%*
Net investment income 6.04% 5.84% 4.89%*
Portfolio turnover 219% 231% 55%
Net assets at end of
period (000 omitted) $4,004 $ 853 $ 228
* Annualized.
** Not annualized.
*** For the period from the commencement of the Series' investment operations,
October 24, 1995, through December 31, 1995.
# Per share data are based on average shares outstanding.
## The Series' expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser and/or distributor voluntarily waived a portion of
their management fee and/or distribution fee, respectively, for certain of
the periods indicated. If the fee had been incurred by the Series, the net
investment income per share and the ratios would have been:
Net investment income (loss)# $ 0.37 $(0.26) $(0.70)
Ratios (to average net assets):
Expenses## 3.58% 9.45% 43.85%
Net investment income (loss) 3.46% (2.61)% (37.96)%
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Bond Series (the Series) is a diversified series of MFS(R) Variable
Insurance Trust (the Trust) which is comprised of the following 12 Series: MFS
Bond Series, MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) Growth with Income Series, MFS(R) High Income
Series, MFS(R) Limited Maturity Series, MFS(R) Money Market Series, MFS(R)
Research Series, MFS(R) Total Return Series, MFS(R) Utilities Series, MFS(R)
Value Series and MFS(R) World Governments Series. The Trust is organized as a
Massachusetts business trust and is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
shareholders of the 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 10 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - 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.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and 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 net 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, a loss of $236 from
accumulated undistributed net realized gain on investments and foreign
currency transactions and a loss of $242 from paid in capital were
reclassified to accumulated undistributed net investment income due to
differences between book and tax accounting for mortgage-backed securities.
This change had no effect on the net assets or net asset value per share. At
December 31, 1997, accumulated undistributed net investment income under book
accounting was different from tax accounting due to temporary differences in
accounting for wash sales.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of average daily net assets. Under a temporary expense limitation agreement
with MFS, MFS has voluntarily agreed to pay all of the Series' operating
expenses, exclusive of management fees, which exceed 0.40% of the Series'
average daily net assets. The Series in turn will pay MFS an expense
reimbursement fee not greater than 0.40% of the Series' 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 $108,383, including $49,931 incurred in the current
year.
Administrator - Effective March 1, 1997, the Series has an administrative
services agreement with MFS to provide the Series with certain financial,
legal, shareholder servicing, compliance, and other administrative services.
As a partial reimbursement for the cost of providing these services, the
Series pays MFS an administrative fee at the following annual percentages of
the Series average daily net assets, provided that the administrative fee is
not assessed on Series assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations.
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $4,232,668 $3,002,723
---------- ----------
Investments (non-U.S. government securities) $2,782,895 $1,553,279
---------- ----------
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 $4,438,850
----------
Gross unrealized appreciation $ 68,999
Gross unrealized depreciation (11,536)
----------
Net unrealized appreciation $ 57,463
==========
(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:
Year Ended December Year Ended December
31, 1997 31, 1996
-------------------- ------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Shares sold 302,671 $3,167,115 68,218 $683,975
Shares issued to shareholders in
reinvestment of distributions -- -- 2,796 28,266
Shares reacquired (26,220) (278,158) (8,589) (85,933)
------- ---------- ------ --------
Net increase 276,451 $2,888,957 62,425 $626,308
======= ========== ====== ========
(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 Series, 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 $0.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of MFS Bond
Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Bond 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 years ended December 31, 1997 and
1996, and the financial highlights for the years ended December 31, 1997 and
1996, and the period from October 24, 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 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 Bond 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
VFB-2 2/98 5M
</TABLE>
