<PAGE>
Annual Report
[Logo] MFS(SM) for Year Ended
INVESTMENT MANAGEMENT December 31, 1997
MFS(R) VALUE SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST (SM)
[Graphic Omitted]
<PAGE>
MFS(R) VALUE SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST (SM)
<TABLE>
<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
John F. Brennan, Jr.* 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
</TABLE>
<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 VALUE SERIES
For the year ended December 31, 1997, the Series provided a total return of
26.47% (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 benchmark can mainly be attributed to
underweightings in sectors that turned in better-than-expected performance in
1997. The oil services sector, for example, was up approximately 50%, and the
Series had no exposure there. Technology was up approximately 27%, and the
Series was slightly underweighted there. In financial services, another top-
performing sector, the Series was slightly underweighted, particularly in
banking, although we were slightly overweighted in insurance. In banking, the
big story has been consolidation, which has driven stock prices, while
insurance has been helped by asset gatherers that have benefited from the
growth in 401(k) retirement plans as well as from strong equity market
performance. Also, property/casualty and life insurers have benefited from
ongoing consolidation.
In health care, the Series is emphasizing two main areas. One is the
pharmaceutical sector, in which we own Bristol-Myers Squibb, Sanofi, and
Novartis. We think Bristol-Myers is going to see above-peer growth rates and,
because it trades at one of the lowest multiples in the industry, we think we
may see some relative valuation improvement there. Novartis is a cost-cutting
and consolidation story, and Sanofi is a relatively small company that plans
to roll out two new products over the next couple of years, one for the
treatment of hypertension and the other for stroke prevention. In the drug
store area, Rite Aid has performed well and its valuation has risen, but it is
still trading at a discount to other major chains, so it's relatively
undervalued. The company's consolidation of its acquisition of Thrifty Payless
on the West Coast is going well. Managed care is also helping these big
chains. It hurts the smaller, individually owned stores, but the chains
benefit from the large volume of sales.
In general, the overall business environment has been quite favorable. The
U.S. economy is growing at a sustainable rate, and inflation is low despite
some signs of wage pressures. U.S. productivity has been better than expected
and is relatively competitive with most developed countries. The wild card
going into 1998 is the devaluation of Asian currencies and the potential
impact that may have on the competitive position of the United States versus
some of the emerging markets. While we believe it will slow economic growth in
1998, this should help mitigate any wage-related inflation pressures and,
hopefully, extend the low-inflation, moderate-growth economic scenario we've
experienced in the United States over the past several years.
Looking ahead, we think the economy is going to see moderate growth in 1998.
Inflation has the potential to become more of an issue, at least on the labor
side. Industries that are more labor intensive, such as business services,
restaurants, and retail, are probably going to have to face the wage issue,
which could slow some of their earnings momentum. On the flip side, we could
see further pressure on commodity prices. We think it will be more difficult
for U.S. companies to compete with Southeast Asian companies in products like
steel, paper, and forest products because of the potential increase in supply.
Technology, meanwhile, probably will not be greatly affected because labor is
such a small percentage of its total costs and because most of its costs and
sales are priced in dollars. Also, the actual consumption of products like
personal computers and cellular phones in Southeast Asia, not including Japan
or China, is probably only about 5% to 10% of the end market. So, while we're
looking at more of the same for the economy overall, it will be important to
watch sectors that might be affected by what's happening in the global
economy, especially in Asia.
Respectfully,
/s/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
John F. Brennan, Jr., joined MFS in 1985 as an industry specialist and was
promoted to Assistant Vice President -- Investments in 1987, Vice President --
Investments in 1988, and Senior Vice President in 1995. A graduate of the
University of Rhode Island and the Stanford University Graduate School of
Business Administration, he has managed MFS Value Series since 1996.
<PAGE>
OBJECTIVE AND POLICIES
The Series' investment objective is to seek capital appreciation.
Commencement of investment operations: August 14, 1996
TAX FORM SUMMARY
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
The Series has designated $63,352 as long-term capital gain distributions for
tax purposes.
DIVIDENDS-RECEIVED DEDUCTION
For the year ended December 31, 1997, the amount of distributions eligible for
the 70% dividends-received deduction for corporations came to 3.42%.
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Value
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 September 1, 1996, through December 31, 1997)
MFS Value S&P 500 Consumer Price
Series - VIT Composite Index Index - U.S.
------------ --------------- ------------
9/96 $10,000 $10,000 $10,000
12/96 10,912 11,443 10,085
6/97 12,151 13,801 10,193
12/97 13,812 15,261 10,301
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
- -------------------------------------------------------------------------------
MFS Value Series +26.47% +25.99%
- -------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +33.36% +37.89%
- -------------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.82%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
August 14, 1996, 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 - 87.2%
- -------------------------------------------------------------------------------
Issuer Shares Value
- -------------------------------------------------------------------------------
U.S. Stocks - 70.5%
Aerospace - 3.7%
Allied Signal, Inc. 573 $ 22,311
Howmet International, Inc.* 3,400 51,000
Raytheon Co. A 1,400 69,038
Raytheon Co. B 600 30,300
Thiokol Corp. 445 36,156
----------
$ 208,805
- -------------------------------------------------------------------------------
Banks and Credit Companies - 3.6%
Fleet/Norstar Financial Group, Inc. 1,013 $ 75,912
National City Corp. 850 55,888
Wells Fargo & Co. 209 70,942
----------
$ 202,742
- -------------------------------------------------------------------------------
Building - 0.2%
Newport News Shipbuilding, Inc. 401 $ 10,200
- -------------------------------------------------------------------------------
Business Services - 0.9%
Galileo International, Inc. 1,900 $ 52,487
- -------------------------------------------------------------------------------
Chemicals - 0.7%
Cambrex Corp. 594 $ 27,324
Ferro Corp. 1 12
NL Industries, Inc.* 887 12,085
----------
$ 39,421
- -------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.3%
Compaq Computer Corp. 1,271 $ 71,732
- -------------------------------------------------------------------------------
Computer Software - Systems - 2.6%
Adobe Systems, Inc. 1,200 $ 49,500
Computer Associates International, Inc. 988 52,240
Synopsys, Inc.* 1,182 42,257
----------
$ 143,997
- -------------------------------------------------------------------------------
Consumer Goods and Services - 11.6%
Dollar Thrifty Automotive Group* 300 $ 6,150
Philip Morris Cos., Inc. 1,727 78,255
Tyco International Ltd. 12,740 574,096
----------
$ 658,501
- -------------------------------------------------------------------------------
Containers - 1.1%
Jefferson Smurfit Corp.* 1,966 $ 27,770
Stone Container Corp. 3,371 35,185
----------
$ 62,955
- -------------------------------------------------------------------------------
Electrical Equipment - 0.1%
Belden, Inc. 172 $ 6,063
- -------------------------------------------------------------------------------
Electronics - 2.1%
Analog Devices, Inc.* 1,692 $ 46,847
Teradyne, Inc.* 1,677 53,664
Xilinx, Inc.* 500 17,531
----------
$ 118,042
- -------------------------------------------------------------------------------
Entertainment - 7.8%
American Radio Systems Corp., "A"* 4,339 $ 231,323
Casino America, Inc.* 560 1,365
Harrah's Entertainment, Inc.* 4,229 79,822
Hearst-Argyle Television, Inc.* 300 8,925
LIN Television Corp.* 315 $ 17,168
Telemundo Group, Inc.* 2,566 104,885
----------
$ 443,488
- -------------------------------------------------------------------------------
Financial Institutions - 1.5%
CIT Group, Inc., "A"* 100 $ 3,225
Federal Home Loan Mortgage Corp. 758 31,789
First Union Corp. 1,000 51,250
----------
$ 86,264
- -------------------------------------------------------------------------------
Forest and Paper Products - 0.7%
Temple-Inland, Inc. 749 $ 39,182
- -------------------------------------------------------------------------------
Insurance - 5.0%
CIGNA Corp. 297 $ 51,400
Hartford Financial Services Group, Inc. 594 55,576
Lincoln National Corp. 765 59,766
PennCorp Financial Group, Inc. 1,494 53,317
Reliastar Financial Corp. 1,554 64,005
----------
$ 284,064
- -------------------------------------------------------------------------------
Medical and Health Products - 1.1%
Bristol-Myers Squibb Co. 682 $ 64,534
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 4.0%
AmeriSource Health Corp., "A"* 747 $ 43,513
Tenet Healthcare Corp.* 1,971 65,289
United Healthcare Corp. 2,368 117,660
----------
$ 226,462
- -------------------------------------------------------------------------------
Oils - 0.8%
Enron Oil & Gas Co. 2,010 $ 42,587
- -------------------------------------------------------------------------------
Pollution Control - 0.8%
Waste Management, Inc. 1,704 $ 46,860
- -------------------------------------------------------------------------------
Railroads - 0.6%
Wisconsin Central Transportation Corp.* 1,382 $ 32,304
- -------------------------------------------------------------------------------
Restaurants and Lodging - 3.3%
Hilton Hotels Corp. 824 $ 24,514
ITT Corp.* 699 57,930
Outback Steakhouse, Inc.* 1,000 28,750
Promus Hotel Corp.* 1,750 73,500
----------
$ 184,694
- -------------------------------------------------------------------------------
Stores - 3.0%
Arbor Drugs, Inc. 612 $ 11,322
Gymboree Corp.* 196 5,366
Office Depot, Inc.* 2,200 52,662
Rite Aid Corp. 1,746 102,468
----------
$ 171,818
- -------------------------------------------------------------------------------
Supermarkets - 6.4%
Meyer (Fred), Inc.* 7,721 $ 280,852
Safeway, Inc.* 1,317 83,300
----------
$ 364,152
- -------------------------------------------------------------------------------
Telecommunications - 7.2%
Ascend Communications, Inc.* 1,000 $ 24,500
Cellular Communications International* 3,770 176,247
Granite Broadcasting Corp.* 4,283 38,815
Gray Communications Systems, Inc. 5,007 131,434
LCI International, Inc.* 1,100 33,825
----------
$ 404,821
- -------------------------------------------------------------------------------
Utilities - Telephone - 0.4%
Sprint Corp. 414 $ 24,271
- -------------------------------------------------------------------------------
Total U.S. Stocks $ 3,990,446
- -------------------------------------------------------------------------------
Foreign Stocks - 16.7%
Canada - 1.7%
Canadian National Railway Co. (Railroads) 2,085 $ 98,516
- -------------------------------------------------------------------------------
Finland - 0.7%
Nokia Corp., ADR (Telecommunications) 600 $ 42,000
- -------------------------------------------------------------------------------
France - 4.6%
Alcatel Alsthom Compagnie (Telecommunications) 711 $ 90,411
Alcatel Alsthom, ADR (Telecommunications) 773 19,567
Sanofi (Medical and Health Products) 1,325 147,565
----------
$ 257,543
- -------------------------------------------------------------------------------
Germany - 1.9%
Henkel Kgaa (Chemicals) 871 $ 55,013
Wella AG (Cosmetics) 65 49,374
----------
$ 104,387
- -------------------------------------------------------------------------------
Hong Kong - 0.5%
Cafe De Coral Holding Co. (Restaurants) 25,400 $ 5,540
Dah Sing Financial Group (Banks and Credit Cos.) 5,200 12,516
Liu Chong Hing Bank (Banks and Credit Cos.) 3,000 4,375
Wing Hang Bank Ltd. (Banks and Credit Cos.) 2,700 7,631
----------
$ 30,062
- -------------------------------------------------------------------------------
Italy - 1.1%
Telecom Italia S.p.A. (Telecommunications)* 13,487 $ 59,518
- -------------------------------------------------------------------------------
Malaysia - 0.3%
New Straits Times Press Berhad (Printing and
Publishing) 7,000 $ 8,707
Tanjong PLC (Entertainment) 6,000 9,987
----------
$ 18,694
- -------------------------------------------------------------------------------
Netherlands - 2.0%
Akzo Nobel N.V. (Chemicals) 294 $ 50,737
Benckiser NV (Consumer Goods and Services)* 1,500 62,124
----------
$ 112,861
- -------------------------------------------------------------------------------
Portugal - 0.4%
Banco Totta E Acores (Banks and Credit Cos.) 1,198 $ 23,550
- -------------------------------------------------------------------------------
Singapore - 0.1%
Mandarin Oriental International Ltd. (Restaurants
and Lodgings)* 8,855 $ 5,933
- -------------------------------------------------------------------------------
South Korea - 0.4%
SK Telecommunications (Telecommunications) 60 $ 18,115
SK Telecom Ltd, ADR (Telecommunications) 1,012 6,578
----------
$ 24,693
- -------------------------------------------------------------------------------
Sweden - 0.6%
Sparbanken Sverige AB, "A" (Banks and Credit Cos.) 1,371 $ 31,206
- -------------------------------------------------------------------------------
Switzerland - 1.3%
Novartis AG (Pharmaceuticals) 45 $ 73,143
- -------------------------------------------------------------------------------
United Kingdom - 1.1%
British Petroleum PLC, ADR (Oils) 734 $ 58,491
Corporate Services Group PLC (Business Services) 1,753 6,142
----------
$ 64,633
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 946,739
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $4,556,180) $4,937,185
- -------------------------------------------------------------------------------
Short-Term Obligation - 9.8%
- -------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/98, at
Amortized Cost $ 555 $ 554,927
- -------------------------------------------------------------------------------
Put Options Purchased - 1.2%
- -------------------------------------------------------------------------------
Number
of Contracts
- -------------------------------------------------------------------------------
Issuer/Expiration Month/Strike Price
- -------------------------------------------------------------------------------
S&P 500 Index/December 1998/850 (Premiums
Paid, $86,454) 23 $ 66,125
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,197,561) $5,558,237
Other Assets, Less Liabilities - 1.8% 101,591
- -------------------------------------------------------------------------------
Net Assets - 100.0% $5,659,828
- -------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
December 31, 1997
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $5,197,561) $5,558,237
Cash 49,552
Net receivable for closed forward foreign currency exchange
contracts closed or subject to master netting agreements 176
Receivable for Series shares sold 53,300
Receivable for investments sold 3,135
Interest and dividends receivable 4,770
Deferred organization expenses 6,662
----------
Total assets $5,675,832
----------
Liabilities:
Payable for Series shares reacquired $ 6,981
Payable to affiliates -
Management fee 114
Administrative fee 3
Shareholder servicing agent fee 7
Accrued expenses and other liabilities 8,899
----------
Total liabilities $ 16,004
----------
Net assets $5,659,828
==========
Net assets consist of:
Paid-in capital $5,357,872
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 360,847
Accumulated distributions in excess of net realized gain on
investments and foreign currency transactions (58,715)
Accumulated distributions in excess of net investment income (176)
----------
Total $5,659,828
==========
Shares of beneficial interest outstanding 484,368
=======
Net asset value, offering price, and redemption price per
share (net assets $5,659,828 / 484,368 shares of
beneficial interest outstanding) $11.68
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 50,482
Dividends 32,794
Foreign taxes withheld (1,324)
--------
Total investment income $ 81,952
--------
Expenses -
Management fee $ 32,114
Trustees' compensation 2,033
Shareholder servicing agent fee 1,504
Administration fee 561
Printing 25,432
Auditing fees 17,752
Custodian fee 6,633
Amortization of organization expenses 1,837
Legal fees 1,301
Miscellaneous 482
--------
Total expenses $ 89,649
Fees paid indirectly (960)
Reduction of expenses by investment adviser (45,870)
--------
Net expenses $ 42,819
--------
Net investment income $ 39,133
--------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $662,040
Foreign currency transactions (2,192)
--------
Net realized gain on investments and foreign
currency transactions $659,848
--------
Change in unrealized appreciation -
Investments $287,541
Translation of assets and liabilities in foreign
currencies 171
--------
Net unrealized gain on investments and foreign
currency translation $287,712
--------
Net realized and unrealized gain on
investments and foreign currency $947,560
--------
Increase in net assets from operations $986,693
========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 39,133 $ 3,123
Net realized gain on investments and foreign currency
transactions 659,848 18,540
Net unrealized gain on investments and foreign currency
translation 287,712 73,135
---------- ----------
Increase in net assets from operations $ 986,693 $ 94,798
---------- ----------
Distributions declared to shareholders -
From net investment income $ (37,655) $ (3,068)
From net realized gain on investments and foreign
currency transactions (640,159) (18,540)
In excess of net realized gain on investments and foreign
currency transactions -- (1,083)
From capital (53,104) (3,853)
---------- ----------
Total distributions declared to shareholders $ (730,918) $ (26,544)
---------- ----------
Net increase in net assets from Series share transactions $4,052,798 $1,274,401
---------- ----------
Total increase in net assets $4,308,573 $1,342,655
Net assets:
At beginning of period 1,351,255 8,600
---------- ----------
At end of period (including accumulated distributions in
excess of net investment income of $176 and $0,
respectively) $5,659,828 $1,351,255
========== ==========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------
1997 1996*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.66 $10.00
------ ------
Income from investment operations# -
Net investment income(S) $ 0.12 $ 0.07
Net realized and unrealized gain on investments and foreign
currency transactions 2.66 0.88
------ ------
Total from investment operations $ 2.78 $ 0.95
------ ------
Less distributions declared to shareholders -
From net investment income $(0.09) $(0.03)
From net realized gain on investments and foreign currency
transactions (1.54) (0.21)
In excess of net realized gain on investments and foreign
currency transactions -- (0.01)
From capital (0.13) (0.04)
------ ------
Total distributions declared to shareholders $(1.76) $(0.29)
------ ------
Net asset value - end of period $11.68 $10.66
====== ======
Total return 26.47% 8.78%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00%+
Net investment income 0.91% 1.72%+
Portfolio turnover 270% 44%
Average commission rate $0.0401 $0.0204
Net assets at end of period (000 omitted) $ 5,660 $ 1,351
+ Annualized.
++ Not annualized.
* For the period from the commencement of the Series' investment operations, August 14, 1996, through
December 31, 1996.
# Per share data are based on average shares outstanding.
## Expenses are calculated without reduction of fees paid indirectly.
(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 this limitation, the net investment loss per
share and ratios would have been:
Net investment loss $(0.02) $(0.04)
Ratios (to average net assets):
Expenses## 2.08% 3.83%+
Net investment loss (0.18)% (1.11)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Value Series (the Series) is a diversified series of MFS(R) 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(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 Value Series, and MFS(R) World Governments Series. The Trust is organized
as a Massachusetts business Trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The shareholders of each Series of the Trust are separate accounts of
insurance companies which offer variable annuity and/or life insurance
products. As of December 31, 1997, there were eight 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.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are
not available are valued at last quoted bid prices. 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. 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. Options listed on commodities exchanges are
reported at market value using closing settlement prices.
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.
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 increased by $1,654, accumulated
distributions in excess of net realized gain on investments was increased by
$24,272, and paid in capital was increased by $25,926 due to differences between
book and tax accounting for foreign currency transactions and the treatment of
gains and losses on redemption in-kind transactions. This change had no effect
on the net assets or net asset value per share. At December 31, 1997,
accumulated net realized gain on investments and foreign currency transactions
under book accounting were different from tax accounting due to temporary
differences in accounting for losses on wash sale transactions.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of 0.75% of average daily net assets. The Series has a temporary expense
reimbursement agreement whereby MFS has voluntarily agreed to pay all of the
Series' operating expenses, exclusive of management fees. The Series in turn
will pay MFS an expense reimbursement fee not greater than 0.25% of average
daily net assets. To the extent that the expense reimbursement fee exceeds the
Series' actual expenses, the excess will be applied to amounts paid by MFS in
prior years. At December 31, 1997, the aggregate unreimbursed expenses owed to
MFS by the Series amounted to $57,949.
Administrator - Effective March 1, 1997, the Series has an administrative
services agreement with MFS to provide the Series with certain financial,
legal, shareholder servicing, compliance, and other administrative services.
As a partial reimbursement for the cost of providing these services, the
Series pays MFS an administrative fee at the following annual percentages of
the Series' average daily net assets, provided that the administrative fee is
not assessed on Series assets that exceed $3 billion:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, aggregated $12,391,325, and $9,705,538,
respectively. Investments having an aggregate market value of $4,164,741 at
date of redemption were distributed in payment for capital stock redeemed for
the year ended December 31, 1997, resulting in realized capital gains, for
book purposes, of $79,030.
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 $5,228,834
----------
Gross unrealized appreciation $ 512,487
Gross unrealized depreciation (183,084)
----------
Net unrealized appreciation $ 329,403
==========
(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 Period Ended December
31, 1997 31, 1996*
---------------------- ---------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
Shares sold 779,105 $9,843,861 123,715 $1,251,706
Shares issued to shareholders
in reinvestment of
distributions 63,945 730,892 2,506 26,544
Shares reacquired (485,405) (6,521,955) (358) (3,849)
------- ---------- ------- ----------
Net increase 357,645 $4,052,798 125,863 $1,274,401
======= ========== ======= ==========
* For the period from the commencement of the Series investment operations,
August 14, 1996, through December 31, 1996.
(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 $29.
(7) Financial Instruments
The Series trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include forward foreign currency exchange contracts. The
notional or contractual amounts of these instruments represent the investment
the Series has in particular classes of financial instruments and does not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered.
Forward foreign currency purchases and sales under master netting agreements
amounted to a net receivable of $176 with Deutschebank at December 31, 1997.
At December 31, 1997, the Series had sufficient cash and/or securities to
cover any commitments under these contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Variable Insurance Trust and Shareholders of MFS
Value Series:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Value Series (one of the series
constituting 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 and financial highlights for the year ended December 31, 1997 and the
period from August 14, 1996 (commencement of investment operations) to December
31, 1996. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1997 by correspondence with the custodian. 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 Value 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
VVS-2 2/98 12.9M
