<PAGE>
Annual Report
[LOGO] MFS(SM) for Year Ended
INVESTMENT MANAGEMENT December 31, 1997
MFS(R) RESEARCH SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
[Graphic Omitted]
<PAGE>
MFS(R) RESEARCH 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 500 Boylston Street
Company (Blockbuster Video franchise) Boston, MA 02116-3741
DIRECTOR OF RESEARCH INVESTOR SERVICE
Kevin R. Parke* 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
[Dalbar Logo] For the fourth year in a row, MFS earned a #1 ranking in the
DALBAR, Inc. Broker/Dealer Survey, Main Office Operations
Service Quality Category. The firm achieved a 3.42 overall
score on a scale of 1 to 4 in the 1997 survey. A total of 111
firms responded, offering input on the quality of service they
received from 29 mutual fund companies nationwide. The survey
contained questions about service quality in 11 categories,
including "knowledge of operations contact," "keeping you
informed," and "ease of doing business" with the firm.
*Affiliated with the Investment Adviser
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE>
MFS Mourns Chairman's Passing
It is with deep regret that we inform you of the death on February 2, 1998, of
A. Keith Brodkin, Chairman and Chief Executive Officer of MFS Investment
Management(SM). Mr. Brodkin joined MFS in 1970 and made enormous contributions
to the organization, including helping to build the firm's investment staff,
which will continue to manage all of the MFS investment portfolios. His
leadership, friendship, and wise counsel will be sorely missed.
Dear Contract Owners:
Thanks to a sustained period of relative stability and moderate growth, the
U.S. economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been
favorable. The increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. The rapid
pace of growth seen in the first quarter slowed to an annual rate of 3.3% in
the second quarter and 3.5% in the third. We believe this economic momentum
will carry well into the first quarter of 1998 as a result of lower interest
rates and continuing growth in the money supply. While 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 RESEARCH SERIES
For the year ended December 31, 1997, the Series provided a total return of
20.26% (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 relative to the S&P 500 over the past year can be attributed
to a number of factors, including the narrowness of the U.S. equity market, a
decline in the value of several of our foreign holdings, and our relative
weightings in the technology, consumer staples, transportation, and health
care (particularly pharmaceutical) sectors of the market. Overall, the
companies that the analysts have chosen within these sectors have performed
very well and are leaders in their respective industries. The Series did
outperform the S&P 500 over the past 12 months in the financial services,
retailing, and industrial goods and services sectors.
Over the past year, sector weightings in the Series have shifted based on the
industry analysts' changing best ideas. Most notably, the financial services
sector has increased by nearly 7%. Within this sector, several stocks
contributed to the Series' performance, most notably PNC Bank, Corestates
Financial, and Comerica, Inc. These companies have developed solid competitive
positions within an industry that continues to benefit from an environment of
slow-to-moderate growth, low inflation, and rapid consolidation.
The Series has also increased its weighting in the technology sector by 4.6%.
While a number of companies within this sector dampened the Series' returns in
the latter half of 1997, this was seen as a result of the crisis in Asia,
where uncertain demand and negative currency positions have significantly
affected certain stocks. We remain cautious on the impact of Asian
developments and, as a result, there have been a number of changes in the
Series, with an emphasis toward companies that we believe possess strong
secular growth opportunities. Oracle is an example of one company that has
been affected by the "Asian flu". This resulted in a disappointing earnings
report in November, and we will be monitoring its situation closely. Companies
within the technology sector that finished the year strongly were Computer
Associates International, Compaq Computer, Compuware Corp., and Cadence Design
Systems.
While we have maintained a neutral weighting relative to the S&P 500 in the
transportation sector, the analysts continue to search for the best ideas in
this industry also. One example is Wisconsin Central Transportation, which
derives a great deal of its earnings from international acquisitions. The
stock has suffered due to a lack of acquisitions in 1997, a loss of focus by
the company on its core domestic business, and missed earnings estimates.
However, Wisconsin Central should benefit in 1998 from three positive factors.
First, it is the front-runner for three big Australian acquisitions in 1998
and 1999. Second, its acquisition of British Rail over a year ago should
result in profits this year. Third, its domestic operations are back on track.
The Series remains overweighted in consumer staples and retailing, sectors in
which companies such as Earthgrains, Office Depot, and Safeway have enhanced
returns. Conversely, the analysts have reduced their weightings in autos and
housing and in basic materials because profits continue to be uncertain. In
addition, the Series remains underweighted in utilities and communications
relative to the S&P 500 because the analysts believe deregulation and
increased competition will decelerate the earnings of the large players in the
industry. They are therefore focusing on the smaller companies that are likely
to be acquired in a consolidation environment.
We will continue to seek fundamentally strong companies to add to the Series
in the year ahead. The Series continues to be based upon the research
analysts' best ideas within their industries. Stocks are selected after
careful, in-depth fundamental analysis of companies' earnings outlooks. Each
analyst considers the economic outlook as part of his or her decision to buy a
stock but does not decide based solely on economic forecasts. Therefore, the
stocks selected for inclusion in the Series are companies that the analysts
believe offer the best possibility for capital appreciation within their
industries regardless of the economic outlook. These companies typically
demonstrate dominant and/or growing market share, quality new and existing
products, superior management teams, and strong financial statements. Sector
and industry weightings are a fallout of the "best ideas" stock-selection
process. However, the analysts revisit weightings regularly to assure
agreement within the changing economic landscape.
Respectfully,
/s/ Kevin R. Parke
Kevin R. Parke
Director of Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Series under the general supervision of Mr. Parke.
<PAGE>
OBJECTIVE AND POLICIES
The Series' investment objective is to provide long-term growth of capital and
future income.
Commencement of investment operations: July 26, 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
20.1%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Research
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 Research S&P 500 Consumer Price
Date Series - VIT Composite Idnex Index - U.S.
8/95 $10,000 $10,000 $10,000
12/95 11,062 11,078 10,059
12/96 13,532 13,621 10,400
12/97 16,274 18,165 10,623
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
- -------------------------------------------------------------------------
MFS Research Series +20.26% +22.13%
- -------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +33.36% +29.49%
- -------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.51%
- -------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
July 26, 1995, through December 31, 1997.
# Source: 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 - 97.3%
- -------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------
U.S. Stocks - 89.5%
Aerospace - 2.9%
Lockheed Martin Corp. 26,000 $ 2,561,000
United Technologies Corp. 79,400 5,781,312
------------
$ 8,342,312
- -------------------------------------------------------------------------------
Apparel and Textiles - 0.1%
Reebok International Ltd.* 12,400 $ 357,275
- -------------------------------------------------------------------------------
Banks and Credit Companies - 6.2%
BankBoston Corp. 20,040 $ 1,882,508
Chase Manhattan Corp. 29,832 3,266,604
Comerica, Inc. 31,800 2,869,950
Corestates Financial Corp. 33,900 2,714,119
Fleet Financial Group, Inc. 39,400 2,952,537
PNC Bank Corp. 33,700 1,923,006
Wells Fargo & Co. 6,200 2,104,512
------------
$ 17,713,236
- -------------------------------------------------------------------------------
Building - 1.0%
American Standard Cos., Inc.* 46,700 $ 1,789,194
Newport News Shipbuilding, Inc. 36,300 923,381
------------
$ 2,712,575
- -------------------------------------------------------------------------------
Business Machines - 0.3%
Sun Microsystems, Inc.* 18,000 $ 717,750
- -------------------------------------------------------------------------------
Business Services - 3.4%
AccuStaff, Inc.* 49,600 $ 1,140,800
Cendant Corp.* 184,549 6,343,872
First Data Corp. 83,300 2,436,525
------------
$ 9,921,197
- -------------------------------------------------------------------------------
Chemicals - 2.6%
Air Products & Chemicals, Inc. 26,500 $ 2,179,625
Cytec Industries, Inc.* 53,800 2,525,238
DuPont (E.I.) de Nemours & Co., Inc. 21,300 1,279,331
Praxair, Inc. 32,100 1,444,500
------------
$ 7,428,694
- -------------------------------------------------------------------------------
Computer Software - Personal Computers - 5.5%
Compaq Computer Corp. 100,550 $ 5,674,791
Electronic Arts, Inc.* 66,200 2,503,187
Microsoft Corp.* 58,600 7,574,050
------------
$ 15,752,028
- -------------------------------------------------------------------------------
Computer Software - Systems - 6.4%
Adobe Systems, Inc. 44,000 $ 1,815,000
BMC Software, Inc.* 38,100 2,500,313
Cadence Design Systems, Inc.* 99,650 2,441,425
Computer Associates International, Inc. 85,325 4,511,559
Compuware Corp.* 67,500 2,160,000
Oracle Corp.* 145,200 3,239,775
Sybase, Inc.* 38,800 516,525
Synopsys, Inc.* 28,800 1,029,600
------------
$ 18,214,197
- -------------------------------------------------------------------------------
Consumer Goods and Services - 12.0%
Clorox Co. 25,000 $ 1,976,563
Colgate-Palmolive Co. 84,600 6,218,100
Dial Corp. 21,300 443,306
Gillette Co. 51,800 5,202,662
Philip Morris Cos., Inc. 127,500 5,777,344
Procter & Gamble Co. 63,900 5,100,019
Revlon, Inc., "A"* 38,000 1,341,875
Tyco International Ltd. 182,274 8,213,741
------------
$ 34,273,610
- -------------------------------------------------------------------------------
Containers - 0.5%
Stone Container Corp. 149,600 $ 1,561,450
- -------------------------------------------------------------------------------
Electrical Equipment - 0.9%
Cooper Industries, Inc. 53,700 $ 2,631,300
- -------------------------------------------------------------------------------
Electronics - 2.4%
Analog Devices, Inc.* 40,366 $ 1,117,634
Intel Corp. 66,400 4,664,600
Teradyne, Inc.* 35,800 1,145,600
------------
$ 6,927,834
- -------------------------------------------------------------------------------
Entertainment - 1.1%
Clear Channel Communications, Inc.* 24,900 $ 1,977,994
Jacor Communications, Inc.* 20,600 1,094,375
------------
$ 3,072,369
- -------------------------------------------------------------------------------
Financial Institutions - 3.9%
Advanta Corp.,"B" 9,900 $ 251,213
American Express Co. 14,100 1,258,425
Associates First Capital Corp., "A" 16,600 1,180,675
CIT Group, Inc., "A"* 7,000 225,750
Federal National Mortgage Assn. 48,300 2,756,119
Franklin Resources, Inc. 11,700 1,017,169
Merrill Lynch & Co., Inc. 23,400 1,706,737
Morgan Stanley, Dean Witter, Discover & Co. 19,600 1,158,850
Union Planters Corp. 21,917 1,488,986
------------
$ 11,043,924
- -------------------------------------------------------------------------------
Food and Beverage Products - 2.7%
Coca-Cola Co. 80,200 $ 5,343,325
Earthgrains Co. 14,700 690,900
McCormick & Co., Inc. 64,700 1,811,600
------------
$ 7,845,825
- -------------------------------------------------------------------------------
Forest and Paper Products - 1.5%
Kimberly-Clark Corp. 84,600 $ 4,171,838
- -------------------------------------------------------------------------------
Insurance - 8.5%
Allstate Corp. 27,600 $ 2,508,150
Chubb Corp. 30,400 2,299,000
CIGNA Corp. 18,900 3,270,881
Conseco, Inc. 113,600 5,161,700
FPIC Insurance Group, Inc.* 8,200 238,825
Hartford Financial Services Group, Inc. 31,300 2,928,506
Lincoln National Corp. 25,000 $ 1,953,125
PennCorp Financial Group, Inc. 35,600 1,270,475
Reliastar Financial Corp. 49,314 2,031,120
Travelers Group, Inc. 50,700 2,731,463
------------
$ 24,393,245
- -------------------------------------------------------------------------------
Medical and Health Products - 3.7%
Boston Scientific Corp.* 53,000 $ 2,431,375
Bristol-Myers Squibb Co. 84,900 8,033,663
Uromed Corp.* 53,900 190,334
------------
$ 10,655,372
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 5.3%
Cardinal Health, Inc. 29,800 $ 2,238,725
HBO & Co. 78,400 3,763,200
HEALTHSOUTH Corp.* 84,876 2,355,309
Tenet Healthcare Corp.* 56,800 1,881,500
United Healthcare Corp. 100,600 4,998,562
------------
$ 15,237,296
- -------------------------------------------------------------------------------
Oil Services - 0.7%
Baker Hughes, Inc. 47,600 $ 2,076,550
- -------------------------------------------------------------------------------
Oils - 1.7%
Chevron Corp. 28,800 $ 2,217,600
USX-Marathon Group 78,100 2,635,875
------------
$ 4,853,475
- -------------------------------------------------------------------------------
Pollution Control - 1.1%
Browning Ferris Industries, Inc. 81,000 $ 2,997,000
- -------------------------------------------------------------------------------
Railroads - 1.7%
Burlington Northern Santa Fe Railway Co. 30,800 $ 2,862,475
Wisconsin Central Transportation Corp.* 81,900 1,914,413
------------
$ 4,776,888
- -------------------------------------------------------------------------------
Restaurants and Lodging - 1.2%
Hilton Hotels Corp. 64,000 $ 1,904,000
Host Marriott Corp.* 79,700 1,564,113
Promus Hotel Corp.* 647 27,174
------------
$ 3,495,287
- -------------------------------------------------------------------------------
Stores - 4.6%
CVS Corp. 51,600 $ 3,305,625
Gymboree Corp.* 37,300 1,021,087
Home Depot, Inc. 66,800 3,932,850
Office Depot, Inc.* 79,600 1,905,425
Rite Aid Corp. 49,600 2,910,900
------------
$ 13,075,887
- -------------------------------------------------------------------------------
Supermarkets - 2.2%
Meyer (Fred), Inc.* 41,000 $ 1,491,375
Safeway, Inc.* 74,900 4,737,425
------------
$ 6,228,800
- -------------------------------------------------------------------------------
Telecommunications - 3.2%
Aspect Telecommunications Corp.* 115,100 $ 2,402,713
Brooks Fiber Properties, Inc.* 15,900 874,500
Cisco Systems, Inc.* 52,450 2,924,087
Intermedia Communications, Inc.* 18,900 1,148,175
WorldCom, Inc.* 58,600 1,772,650
------------
$ 9,122,125
- -------------------------------------------------------------------------------
Utilities - Electric - 0.4%
CalEnergy Co., Inc.* 43,800 $ 1,259,250
- -------------------------------------------------------------------------------
Utilities - Telephone - 1.8%
MCI Communications Corp. 40,400 $ 1,729,625
Sprint Corp. 55,900 3,277,137
------------
$ 5,006,762
- -------------------------------------------------------------------------------
Total U.S. Stocks $255,865,351
- -------------------------------------------------------------------------------
Foreign Stocks - 7.8%
Brazil - 0.5%
Companhia Cervejaria Brahma, ADR (Beverages) 105,300 $ 1,493,944
- -------------------------------------------------------------------------------
France - 1.0%
Alcatel Alsthom, ADR (Telecommunications) 111,700 $ 2,827,406
- -------------------------------------------------------------------------------
Hong Kong
Wharf Holdings Ltd. (Real Estate) 14,000 $ 30,716
- -------------------------------------------------------------------------------
Japan - 1.7%
Canon, Inc. (Office Equipment) 87,100 $ 2,035,860
Sankyo Co. Ltd. (Pharmaceuticals) 18,000 408,273
Sony Corp. (Electronics) 27,900 2,488,390
------------
$ 4,932,523
- -------------------------------------------------------------------------------
Sweden - 0.7%
Skandia Forsakrings AB (Insurance) 43,500 $ 2,054,319
- -------------------------------------------------------------------------------
Switzerland - 1.8%
Novartis AG (Pharmaceuticals) 3,100 $ 5,038,749
- -------------------------------------------------------------------------------
United Kingdom - 2.1%
British Petroleum PLC, ADR (Oils) 49,710 $ 3,961,266
Jarvis Hotels PLC (Restaurants and Lodging)+ 330,200 814,768
Kwik-Fit Holdings PLC (Automotive Repair Centers) 179,500 1,042,329
------------
$ 5,818,363
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 22,196,020
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $253,113,617) $278,061,371
- -------------------------------------------------------------------------------
Short-Term Obligations - 11.9%
- -------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted)
- -------------------------------------------------------------------------------
Federal Farm Credit Bank, due 1/09/98 $ 3,875 $ 3,870,169
Federal Home Loan Bank Corp., due 1/02/98 10,150 10,148,619
Federal Home Loan Mortgage Corp., due 1/30/98 10,000 9,953,761
Federal National Mortgage Assn., due 1/27/98 10,000 9,959,411
- -------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 33,931,960
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $287,045,577) $311,993,331
Other Assets, Less Liabilities - (9.2)% (26,148,472)
- -------------------------------------------------------------------------------
Net Assets - 100.0% $285,844,859
- -------------------------------------------------------------------------------
* Non-income producing security.
+ Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $287,045,577) $311,993,331
Cash 89,135
Receivable for Series shares sold 1,438,773
Receivable for investments sold 3,441,019
Interest and dividends receivable 313,788
Deferred organization expenses 7,002
------------
Total assets $317,283,048
------------
Liabilities:
Payable for Series shares reaquired $ 101,172
Payable for investments purchased 31,200,833
Payable to affiliates -
Management fee 5,816
Administrative fee 117
Shareholder servicing agent fee 273
Accrued expenses and other liabilities 129,978
------------
Total liabilities $ 31,438,189
------------
Net assets $285,844,859
============
Net assets consist of:
Paid-in capital $254,340,288
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 24,948,960
Accumulated undistributed net realized gain on investments
and foreign currency transactions 5,974,138
Accumulated undistributed net investment income 581,473
------------
Total $285,844,859
============
Shares of beneficial interest outstanding 18,094,908
==========
Net asset value, offering price, and redemption price per share
(net assets of $285,844,859 / 18,094,908 shares of
beneficial interest outstanding) $15.80
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended December 31, 1997
- ------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,783,431
Interest 515,197
Foreign taxes withheld (34,169)
-----------
Total investment income $ 2,264,459
-----------
Expenses -
Management fee $ 1,343,324
Trustees' compensation 2,033
Shareholder servicing agent fee 62,790
Administration fee 23,446
Custodian fee 73,918
Printing 43,814
Auditing fees 28,892
Amortization of organization expenses 1,837
Legal fees 1,520
Miscellaneous 164
-----------
Total expenses $ 1,581,738
Fees paid indirectly (2,842)
Reimbursement of expenses to investment advisor 73,772
-----------
Net expenses $ 1,652,668
-----------
Net investment income $ 611,791
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 7,566,061
Foreign currency transactions (31,164)
-----------
Net realized gain on investments and foreign currency
transactions $ 7,534,897
-----------
Change in unrealized appreciation -
Investments $23,008,490
Translation of assets and liabilities in foreign
currency 1,167
-----------
Net unrealized gain on investments and foreign
currency translation $23,009,657
-----------
Net realized and unrealized gain on investments
and foreign currency $30,544,554
-----------
Increase in net assets from operations $31,156,345
===========
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 611,791 $ 57,724
Net realized gain on investments and foreign
currency transactions 7,534,897 434,597
Net unrealized gain on investments and foreign
currency translation 23,009,657 1,826,320
------------ -----------
Increase in net assets from operations $ 31,156,345 $ 2,318,641
------------ -----------
Distributions declared to shareholders -
From net investment income $ -- $ (55,987)
From net realized gain on investments and foreign
currency transactions -- (434,345)
In excess of net realized gain on investments and
foreign currency transactions -- (15,595)
------------ -----------
Total distributions declared to shareholders $ -- $ (505,927)
------------ -----------
Net increase in net assets from Series share
transactions $218,978,128 $31,367,503
------------ -----------
Total increase in net assets $250,134,473 $33,180,217
Net assets:
At beginning of year 35,710,386 2,530,169
------------ -----------
At end of year (including accumulated
undistributed net investment income of $581,473
and $403, respectively) $285,844,859 $35,710,386
============ ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Period Ended
----------------------- December 31,
1997 1996 1995*
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $13.13 $10.89 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency
transactions 2.62 2.37 1.01
------ ------ ------
Total from investment operations $ 2.67 $ 2.43 $ 1.06
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.02) $(0.03)
From net realized gain on investments and
foreign currency transactions -- (0.16) (0.14)
In excess of net realized gain on investments
and foreign currency transactions -- (0.01) --
------ ------ ------
Total distributions declared to
shareholders $ -- $(0.19) $(0.17)
------ ------ ------
Net asset value - end of period $15.80 $13.13 $10.89
====== ====== ======
Total return 20.26% 22.33% 10.62%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.92% 1.00% 1.00%+
Net investment income 0.34% 0.47% 1.15%+
Portfolio turnover 99% 56% 28%
Average commission rate### $ 0.0544 $0.0295 $ --
Net assets at end of period (000 omitted) $285,845 $35,710 $2,530
* For the period from the commencement of the Series' investment operations, July 26, 1995, through
December 31, 1995.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Series' expenses are calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for 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 not more than 1.00% of average daily net assets. To the extent actual expenses
were over or under these limitations, the net investment income (loss) per share and the ratios would have
been:
Net investment income $ 0.06 $ -- $(0.08)
Ratios (to average net assets):
Expenses## 0.88% 1.48% 3.90%+
Net investment income 0.38% -- (1.73)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Research Series (the Series) is a diversified series of MFS Variable
Insurance Trust (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The shareholders of
each Series of the Trust are separate accounts of insurance companies which
offer variable annuity and/or life insurance products. As of December 31,
1997, there were 36 shareholders in the series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that 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 by the Series with the
custodian. 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 undistributed net investment income was decreased by $30,721,
accumulated undistributed net realized gain on investments and foreign
currency transactions was decreased by $1,546,498, paid-in capital was
increased by $1,577,219, due to differences between book and tax accounting
for currency transactions and gains and losses from redemption in kind
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 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, compliance, shareholder servicing, 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 average daily net assets at an effective annual rate of
0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$380,667,662 and $167,468,555, respectively. In addition, investments having
an aggregate market value of $56,291,895 at date of redemption were
distributed in payment of capital gains, for book purposes, of $1,572,705.
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 $287,045,577
------------
Gross unrealized appreciation $ 31,848,320
Gross unrealized depreciation (6,900,566)
------------
Net unrealized appreciation $ 24,947,754
============
(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 20,904,749 $305,485,116 2,923,453 $36,570,809
Shares issued to shareholders in
reinvestment of distributions -- -- 38,386 505,927
Shares reacquired (5,529,553) (86,506,988) (474,538) (5,709,233)
---------- ------------ --------- -----------
Net increase 15,375,196 $218,978,128 2,487,301 $31,367,503
========== ============ ========= ===========
</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 $164.
(7) Restricted Security
The Series may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1997, the Series owned the following restricted securities (constituting 0.3%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933. The Series does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service of brokers, or if not available, in
good faith by or at the direction of the Trustees.
Date of Share/Par
Description Acquisition Amount Cost Value
- ------------------------------------------------------------------------------
Jarvis Hotels PLC 6/21/96 - 10/7/97 330,200 $874,501 $814,768
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and the Shareholders of
MFS Research Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Research 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 statement of changes in net assets for the two years then ended and
the financial highlights for the two years then ended and for the period from
July 26, 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 Research
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
VFR-2 2/98 54.7M
