<PAGE>
[Logo]
INVESTMENT MANAGEMENT Annual Report
for Year Ended
December 31, 1997
MFS(R) UTILITIES SERIES
A Series of MFS(R) Variable Insurance Trust(SM)
[Graphic Omitted]
<PAGE>
<TABLE>
MFS(R) UTILITIES 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
Maura A. Shaughnessy* 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
</TABLE>
[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 contribution
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 (Fed) 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.
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 UTILITIES SERIES
For the year ended December 31, 1997, the Series provided a total return of
31.70% (including the reinvestment of any distributions). This compares to a
24.65% return for the Standard & Poor's Utility Index (the Utility Index), an
unmanaged, market-value-weighted, total return index of all utility stocks in
the Standard & Poor's 500 Composite Index (the S&P 500).
In 1997, the Series benefited from a number of good stock selections in the
telecommunications area, including Worldcom, MCI, and many of the competitive
local exchange companies. Also, the Series' position in Latin American
telecommunications and electric utility stocks performed well until the end of
October, when they got caught up in the emerging-market upheaval. However, we
have recently added to our Latin American exposure in places like Mexico,
Brazil, Argentina, and Chile because we are finding many companies trading at
very low valuations relative to their cash-flow growth rates.
Among the Series' larger U.S. electric utility positions are New Century
Energies, which is the old Public Service Company of Colorado; Cinergy, which
operates Cincinnati Gas & Electric; and Sierra Pacific Resources in northern
California and Nevada. Sierra Pacific, for example, has benefited from low
costs, lack of nuclear exposure, a growth rate that is twice the average for
the industry, and good relations with regulators.
While natural gas pipeline companies provided good returns in 1995 and 1996
due to surprising earnings gains and expanding multiples, in the first half of
1997 warm weather and low price volatility caused several companies to report
poor earnings. However, on a positive note, we have seen several mergers take
place in this industry, as many companies attempt to position themselves for
the convergence of the gas and electric markets. Over the past 18 months, the
largest public deals have been Enron's buying Portland General, Duke Power's
buying Panenergy, and Shell's buying Tejas Gas. The Series had positions in
all three takeovers, which helped performance.
Real estate investment trusts, or REITs, make up about 9% of the Series.
Because we prefer not to chase higher-yielding, riskier electrics, we have
chosen to obtain the income from bonds, REITs, and lower-yielding, higher-
growth electrics.
We think there will be more mergers and acquisitions in the electric and gas
industries over the next six to 12 months. There was relatively little of this
in 1997, but as the effects of regulation on the state and local levels become
clearer, we expect merger and acquisition activity to pick up. This should
benefit multiples in all industries involved.
Respectfully,
/s/Maura A. Shaughnessy
Maura A. Shaughnessy
Portfolio Manager
PORTFOLIO MANAGER'S PROFILE
Maura A. Shaughnessy joined MFS in 1991 as an equity analyst and was promoted to
Assistant Vice President in 1992, Vice President in 1993, and Senior Vice
President in 1998. A graduate of Colby College and the Amos Tuck School of
Business of Dartmouth College, she is a Chartered Financial Analyst and has
managed MFS Utilities Series since 1995.
<PAGE>
OBJECTIVE AND POLICIES
The Series' investment objective is to seek capital growth and current income
(income above that available from a portfolio invested entirely in equity
securities).
Commencement of investment operations: January 3, 1995
PERFORMANCE SUMMARY
The information below illustrates the historical performance of MFS Utilities
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 February 1, 1995, through December 31, 1997)
[Graphic Omitted]
MFS Utilities Standard & Poor's Consumer Price
Series - VIT Utility Index Index - U.S.
2/95 $10,000 $ 9,980 $10,000
12/95 13,080 13,093 10,206
12/96 15,501 13,502 10,552
12/97 20,415 16,830 10,779
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1997
1 Year Life of Series*
- -------------------------------------------------------------------------------
MFS Utilities Series +31.70% +27.92%
- -------------------------------------------------------------------------------
Standard & Poor's Utility Index** +24.65% +19.54%
- -------------------------------------------------------------------------------
Consumer Price Index#+ + 2.15% + 2.67%
- -------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
January 3, 1995, through December 31, 1997.
**Source: Lipper Analytical Services, Inc.
#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.
The Series may focus its investments in certain sectors, thereby increasing
its vulnerability to any single economic, political, or regulatory
development.
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS - December 31, 1997
Stocks - 79.2%
- ------------------------------------------------------------------------------------------------------
Issuer Shares Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
U.S. Stocks - 56.0%
Cellular Telephones - 1.7%
Century Telephone Enterprises, Inc. 10,100 $ 503,106
- ------------------------------------------------------------------------------------------------------
Conglomerates - 0.5%
Eastern Enterprises 3,500 $ 157,500
- ------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.9%
Philip Morris Cos., Inc. 5,800 $ 262,812
- ------------------------------------------------------------------------------------------------------
Oils - 0.7%
Enron Oil & Gas Co. 9,800 $ 207,638
- ------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 8.4%
American General Hospitality Corp. 3,600 $ 96,300
Boston Properties, Inc. 300 9,919
Boykin Lodging Co. 4,400 116,325
FelCor Suite Hotels, Inc. 6,900 244,950
Highwoods Properties, Inc. 9,000 334,688
Hospitality Properties Trust 7,100 233,413
Kilroy Realty Corp. 9,800 281,750
Koger Equity, Inc. 2,900 63,619
Liberty Property Trust 2,400 68,550
Mid-America Apartment Communities, Inc. 3,400 97,113
National Health Investors, Inc. 2,850 119,344
Prime Group Realty Trust 5,700 115,425
Sovran Self Storage, Inc. 5,200 168,675
Storage Trust Realty 6,800 178,925
Tower Realty Trust, Inc. 6,900 169,912
TriNet Corporate Realty Trust, Inc. 6,000 232,125
-----------
$ 2,531,033
- ------------------------------------------------------------------------------------------------------
Telecommunications - 8.2%
Brooks Fiber Properties, Inc.* 3,700 $ 203,500
Cellular Communications International, Inc.* 4,000 187,000
Cincinnati Bell, Inc. 9,500 294,500
GTE Corp. 13,300 694,925
Intermedia Communications, Inc.* 2,900 176,175
IXC Communications Inc.* 4,600 144,325
LCI International, Inc.* 7,300 224,475
Nextlink Communications, Inc., "A"* 3,000 63,938
Teleport Communications Group, Inc., "A"* 4,600 252,425
Winstar Communications, Inc.* 1,700 42,394
WorldCom, Inc.* 6,770 204,792
-----------
$ 2,488,449
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 16.3%
AES Corp.* 2,700 $ 125,888
CalEnergy, Inc.* 12,000 345,000
Carolina Power & Light Co. 5,200 220,675
Central & South West Corp. 5,200 140,725
Central Hudson Gas & Electric Corp. 4,600 201,825
Cinergy Corp. 9,000 344,812
CMS Energy Corp. 5,400 237,937
Florida Progress Corp. 10,600 416,050
GPU, Inc. 9,000 379,125
Houston Industries, Inc. 6,000 160,125
Illinova Corp. 1,300 35,019
Long Island Lighting Co. 5,500 165,688
New Century Energies, Inc. 11,200 536,900
Public Service Co. of New Mexico 15,100 357,681
Sierra Pacific Resources 11,400 427,500
Southern Co. 6,600 170,775
Texas Utilities Co. 5,500 228,594
Unicom Corp. 14,100 433,575
-----------
$ 4,927,894
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 13.4%
Coastal Corp. 6,900 $ 427,369
Columbia Gas System, Inc. 11,300 887,756
El Paso Natural Gas Co. 3,500 232,750
Energen Corp. 1,300 51,675
Enron Corp. 6,700 278,469
Keyspan Energy Corp. 4,600 169,337
KN Energy, Inc. 5,900 318,600
National Fuel Gas Co. 4,200 204,487
NGC Corp. 19,000 332,500
NICOR, Inc. 4,500 189,844
NUI Corp. 9,600 275,400
Oneok, Inc.* 4,100 165,538
Questar Corp. 6,900 307,912
Sonat, Inc. 4,400 201,300
-----------
$ 4,042,937
- ------------------------------------------------------------------------------------------------------
Utilities - Telephone - 5.9%
Bell Atlantic Corp. 3,040 $ 276,640
BellSouth Corp. 3,800 213,987
MCI Communications Corp. 14,000 599,375
SBC Communications, Inc. 4,308 315,561
Sprint Corp. 3,800 222,775
US West Communications Group 3,100 139,888
-----------
$ 1,768,226
- ------------------------------------------------------------------------------------------------------
Total U.S. Stocks $16,889,595
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 23.2%
Argentina - 1.3%
Telefonica de Argentina, ADR (Utilities - Telephone) 10,400 $ 387,400
- ------------------------------------------------------------------------------------------------------
Brazil - 3.0%
Cent Elet Sta Cata, "B" (Utilities - Electric) 68,000 $ 84,695
Cia Electric est Rio Janeiro (Utilities - Electric) 218,100 140,710
Cia Paranaensa Energia - Copel, "B" (Utilities -
Electric) 18,200 247,070
Espirito Santo Centrais Electricas S.A. (Utilities -
Electric) 1,100 137,993
Telecomunicacoes Brasileiras S.A., ADR (Utilities -
Telephone) 2,400 279,450
----------
$ 889,918
- ------------------------------------------------------------------------------------------------------
Canada - 1.8%
BCE, Inc. (Telecommunications) 9,400 $ 313,137
Bell Canada International, Inc. (Utilities - Telephone)* 14,500 221,125
----------
$ 534,262
- ------------------------------------------------------------------------------------------------------
Chile - 2.8%
Chilectra S.A., ADR (Utilities - Electric) 17,300 $ 442,379
Cia de Telecom de Chile, ADR (Utilities - Telephone) 7,200 215,100
Empresa Nacional de Electricidad S.A., ADR (Utilities
- Electric) 10,300 182,181
----------
$ 839,660
- ------------------------------------------------------------------------------------------------------
France - 0.6%
Alcatel Alsthom, ADR (Telecommunications) 6,700 $ 169,594
- ------------------------------------------------------------------------------------------------------
Greece - 0.2%
Hellenic Telecommunication Organization S.A., GDR
(Utilities - Telephone) 3,500 $ 71,811
- ------------------------------------------------------------------------------------------------------
Hungary - 0.6%
Magyar Tavkozlesi Rt., ADR (Telecommunications)* 7,000 $ 182,000
- ------------------------------------------------------------------------------------------------------
Italy - 2.3%
Telecom Italia S.p.A. (Telecommunications)* 45,200 $ 288,973
Telecom Italia S.p.A., RNC (Telecommunications)* 33,600 148,277
Telecom Italia MOB, Saving Shares
(Telecommunications) 90,400 257,263
----------
$ 694,513
- ------------------------------------------------------------------------------------------------------
Japan - 0.6%
Nippon Telephone & Telegraph Co. (Utilities - Telephone) 21 $ 180,840
- ------------------------------------------------------------------------------------------------------
Mexico - 1.1%
Grupo Iusacell S.A., ADR (Telecommunications)* 7,200 $ 156,150
Telefonos de Mexico S.A., ADR (Utilities - Telephone) 3,000 168,187
----------
$ 324,337
- ------------------------------------------------------------------------------------------------------
New Zealand - 0.3%
Telecom Corp. of New Zealand, ADR (Utilities - Telephone) 2,200 $ 85,250
- ------------------------------------------------------------------------------------------------------
Peru - 0.9%
Luz del Sur S.A. (Utilities - Electric) 95,000 $ 109,817
Telefonica del Peru S.A., ADR (Utilities - Telephone) 7,000 163,187
----------
$ 273,004
- ------------------------------------------------------------------------------------------------------
Portugal - 2.2%
Portugal Telecom S.A., ADR (Utilities - Telephone) 6,500 $ 305,500
Portugal Telecom S.A. (Utilities - Telephone) 1,200 55,741
Telecel - Comunicacaoes Pessoais S.A. (Telecommunications)* 2,800 298,657
----------
$ 659,898
- ------------------------------------------------------------------------------------------------------
Spain - 2.3%
Endesa S.A., ADR (Utilities - Electric) 11,100 $ 201,881
Iberdrola S.A. (Utilities - Electric) 27,400 361,190
Telefonica de Espana S.A., ADR (Utilities - Telephone) 1,600 145,700
----------
$ 708,771
- ------------------------------------------------------------------------------------------------------
United Kingdom - 3.1%
Cable & Wireless PLC (Telecommunications)* 26,400 $ 114,650
Cable & Wireless PLC, ADR (Telecommunications) 12,200 331,687
Colt Telecom Group PLC, ADR (Telecommunications)* 2,500 106,563
National Grid Group (Utilities - Electric) 21,000 99,835
National Power PLC (Utilities - Electric) 12,900 127,323
PowerGen PLC (Utilities - Electric)* 12,300 160,249
----------
$ 940,307
- ------------------------------------------------------------------------------------------------------
Venezuela - 0.1%
Cia Anonima Nacional Telefonos de Venezuela, ADR
(Utilities - Telephone) 1,000 $ 41,625
- ------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 6,983,190
- ------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $20,893,833) $23,872,785
- ------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks
- ------------------------------------------------------------------------------------------------------
Foreign Stocks
Argentina
Cia Inversiones Telephone, 7% (Utilities -
Telephone)##*
(Identified Cost, $5,775) 100 $ 6,950
- ------------------------------------------------------------------------------------------------------
Preferred Stock - 2.1%
- ------------------------------------------------------------------------------------------------------
U.S. Stocks - 0.6%
Financial Services - 0.6%
Conseco, Inc.* 3,600 $ 184,500
- ------------------------------------------------------------------------------------------------------
Foreign Stocks - 1.5%
Brazil - 1.5%
Cia Riograndense Telecomunicacoes (Utilities -
Telephone)* 312,600 $ 389,350
Telecomunicacoes de Sao Paulo S.A. (Utilities -
Telephone)* 222,600 59,238
-----------
$ 448,588
- ------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $641,928) $ 633,088
- ------------------------------------------------------------------------------------------------------
Bonds - 11.7%
- ------------------------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- ------------------------------------------------------------------------------------------------------
U.S. Bonds - 11.6%
Airlines - 0.1%
Delta Air Lines, Inc., 8.5s, 2002 $ 25 $ 26,677
- ------------------------------------------------------------------------------------------------------
Construction Services - 0.4%
Georgia Pacific Corp., 9.5s, 2022 $ 100 $ 112,603
- ------------------------------------------------------------------------------------------------------
Electronics - 1.0%
ADT Operations, Inc., 0s, 2010 $ 235 $ 290,519
- ------------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
Salton Sea Funding Corp., 6.69s, 2000 $ 63 $ 62,987
- ------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.1%
Boise Cascade Co., 7.43s, 2005 $ 15 $ 15,715
- ------------------------------------------------------------------------------------------------------
Oils - 0.1%
Oryx Energy Co., 10s, 2001 $ 25 $ 27,464
- ------------------------------------------------------------------------------------------------------
Telecommunications - 0.4%
Tele-Communications, Inc., 10.125s, 2001 $ 125 $ 138,079
- ------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 0.5%
Federal National Mortgage Association - 0.5%
FNMA, 7s, 2012 $ 158 $ 160,230
- ------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 6.8%
Government National Mortgage Association - 0.6%
GNMA, 7.5s, 2027 $ 168 $ 172,040
GNMA, 8s, 2025 20 20,875
-----------
$ 192,915
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.2%
U.S. Treasury Notes, 5.875s, 1998 $ 196 $ 196,277
U.S. Treasury Notes, 9.125s, 1999 275 287,331
U.S. Treasury Notes, 5.5s, 2000 75 74,578
U.S. Treasury Notes, 6.125s, 2007 5 5,138
U.S. Treasury Notes, 6.625s, 2007 250 264,610
U.S. Treasury Bonds, 9.875s, 2015 40 56,931
U.S. Treasury Bonds, 6.375s, 2027 935 986,135
-----------
$ 1,871,000
- ------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 2,063,915
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.9%
AEP Generating, 9.82s, 2022 $ 99 $ 127,451
Commonwealth Edison Co., 7.625s, 2007 40 42,215
First PV Funding Corp., 10.15s, 2016 24 25,979
Long Island Lighting Co., 9s, 2022 40 44,663
Montana Power Co., 7.875s, 2026 25 27,984
Niagara Mohawk Power Corp., 8.5s, 2023 10 10,697
-----------
$ 278,989
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.1%
NGC Corp. Capital Trust I, 8.316s, 2027 $ 145 $ 165,023
Tennessee Gas Pipeline Co., 7.625s, 2037 50 53,970
Texas Gas Transmission Corp., 7.25s, 2027 100 104,047
-----------
$ 323,040
- ------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 3,500,218
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.1%
Chile - 0.1%
Empresa Electrica Del Norts (Utilities - Electric),
7.75s, 2006## $ 20 $ 19,416
- ------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $3,345,543) $ 3,519,634
- ------------------------------------------------------------------------------------------------------
Convertible Bond - 0.2%
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 0.2%
China - 0.2%
Huaneng Power International, Inc. (Utilities -
Electric), 1.75s, 2004## (Identified Cost, $64,365) $ 63 $ 61,740
- ------------------------------------------------------------------------------------------------------
Short-Term Obligations - 7.2%
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 1/02/98 $ 490 $ 489,933
Federal Home Loan Mortgage Corp., due 1/14/98 - 1/20/98 1,700 1,695,579
- ------------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 2,185,512
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $27,136,956) $30,279,709
Other Assets, Less Liabilities - (0.4)% (132,897)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $30,146,812
- ------------------------------------------------------------------------------------------------------
*Non-income producing security.
##SEC Rule 144A restriction.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
December 31, 1997
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $27,136,956) $30,279,709
Cash 2,897
Receivable for Series shares sold 210,667
Receivable for investments sold 768,142
Interest and dividends receivable 117,932
Receivable from investment adviser 31,377
Deferred organization expenses 3,698
Other assets 84
-----------
Total assets $31,414,506
-----------
Liabilities:
Payable for Series shares reacquired $ 78,480
Payable for investments purchased 1,154,706
Payable to affiliates -
Management fee 616
Shareholder servicing agent fee 24
Administrative fee 43
Accrued expenses and other liabilities 33,825
-----------
Total liabilities $ 1,267,694
-----------
Net assets $30,146,812
===========
Net assets consist of:
Paid-in capital $24,158,269
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 3,142,701
Accumulated undistributed net realized gain on investments
and foreign currency transactions 2,332,966
Accumulated undistributed net investment income 512,876
-----------
Total $30,146,812
===========
Shares of beneficial interest outstanding 1,676,065
=========
Net asset value per share
(net assets of $30,146,812 / 1,676,065 shares of
beneficialinterest outstanding) $17.99
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- -------------------------------------------------------------------------------
Year Ended December 31, 1997
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 485,746
Interest 215,364
Foreign taxes withheld (11,010)
----------
Total investment income $ 690,100
----------
Expenses -
Management fee $ 131,652
Administrative fee 2,176
Trustees' compensation 2,033
Shareholder servicing agent fee 6,165
Auditing fees 39,861
Printing 14,684
Custodian fee 12,566
Amortization of organization expenses 1,837
Legal fees 1,084
Commitment fee 134
----------
Total expenses $ 212,192
Fees paid indirectly (1,332)
Reduction of expenses by investment adviser (35,371)
----------
Net expenses $ 175,489
----------
Net investment income $ 514,611
----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $2,339,326
Foreign currency transactions (1,735)
----------
Net realized gain on investments and foreign
currency transactions $2,337,591
----------
Change in unrealized appreciation (depreciation) -
Investments $2,531,607
Translation of assets and liabilities in foreign currencies (148)
----------
Net unrealized gain on investments and foreign currency
translation $2,531,459
----------
Net realized and unrealized gain on investments
and foreign currency $4,869,050
----------
Increase in net assets from operations $5,383,661
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 514,611 $ 221,508
Net realized gain on investments and foreign
currency transactions 2,337,591 563,063
Net unrealized gain on investments and foreign
currency translation 2,531,459 375,250
----------- -----------
Increase in net assets from operations $ 5,383,661 $ 1,159,821
----------- -----------
Distributions declared to shareholders -
From net investment income $ -- $ (219,486)
From net realized gain on investments and
foreign currency transactions -- (565,934)
In excess of net realized gain on investments
and foreign currency transactions -- (3,558)
----------- -----------
Total distributions declared to shareholders $ -- $ (788,978)
----------- -----------
Net increase in net assets from Series share
transactions $15,191,010 $ 6,828,129
----------- -----------
Total increase in net assets $20,574,671 $ 7,198,972
Net assets:
At beginning of year 9,572,141 2,373,169
----------- -----------
At end of year (including accumulated
undistributed net investment income of
$512,876 and $0, respectively) $30,146,812 $ 9,572,141
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
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 $13.66 $12.57 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.44 $ 0.55 $ 0.39
Net realized and unrealized gain on investments and
foreign currency transactions 3.89 1.78 3.00
------ ------ ------
Total from investment operations $ 4.33 $ 2.33 $ 3.39
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.35) $(0.24)
From net realized gain on investments and foreign
currency transactions -- (0.88) (0.58)
In excess of net realized gain on investments and
foreign currency transactions -- (0.01) --
------ ------ ------
Total distributions declared to shareholders $ -- $(1.24) $(0.82)
------ ------ ------
Net asset value - end of period $17.99 $13.66 $12.57
====== ====== ======
Total return 31.70% 18.51% 33.94%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.00% 1.00% 1.00%+
Net investment income 2.92% 4.19% 3.66%+
Portfolio turnover 69% 121% 94%
Average commission rate### $0.0306 $0.0416 $ --
Net assets at end of period (000 omitted) $30,147 $ 9,572 $2,373
*For the period from the commencement of the Series' investment operations, January 3, 1995,
through December 31, 1995.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated without reduction for
fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning on or after
September 1, 1995.
(S)The Adviser voluntarily agreed to maintain the expenses of the Series at not more than 1.00% of
average daily net assets. To the extent actual expenses were over this limitation, the net
investment income per share and the ratios would have been:
Net investment income $ 0.41 $ 0.32 $ 0.17
Ratios (to average net assets):
Expenses## 1.20% 2.75% 3.08%+
Net investment income 2.71% 2.44% 1.62%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Utilities 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 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 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 16 shareholders of the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, are valued on the basis
of valuations furnished by dealers or by a pricing service with consideration
to factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or over-the-
counter prices. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rate is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Series in connection
with its organization have been deferred and are being amortized on a
straight-line basis over a five-year period beginning on the date of
commencement of Series operations.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All
discounts are accreted for financial statement and tax reporting purposes as
required by federal income tax regulations. Dividends received in cash are
recorded on the ex-dividend date. Dividend and interest payments received in
additional securities are recorded on the ex-dividend or ex-interest date in
an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage
of the Series' average daily net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Series. This amount is shown as a reduction of expenses on the Statement
of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Series' files a
tax return annually using tax accounting methods required under provisions of
the Code which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Series' tax return.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended December 31, 1997, accumulated undistributed net
investment income was decreased by $1,735, accumulated undistributed net
realized gain on investments was decreased by $2,809, and paid in capital was
increased by $4,544 due to differences between book and tax accounting for
currency transactions. This change had no effect on the net assets or net
asset value per share.
(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. Under a temporary expense limitation agreement
with MFS, 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 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 $152,761.
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).
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%
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, were as follows:
Purchases Sales
- -------------------------------------------------------------------------------
U.S. government securities $ 3,358,950 $2,640,788
----------- ----------
Investments (non-U.S. government securities) $15,757,797 $9,312,142
----------- ----------
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 $27,149,036
-----------
Gross unrealized appreciation $ 3,421,495
Gross unrealized depreciation (290,822)
-----------
Net unrealized appreciation $ 3,130,673
===========
(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 1,542,046 $23,966,904 809,814 $10,713,267
Shares issued to shareholders in
reinvestment of distributions -- -- 57,710 788,907
Shares reacquired (566,548) (8,775,894) (355,735) (4,674,045)
--------- ----------- ------- -----------
Net increase 975,498 $15,191,010 511,789 $ 6,828,129
========= =========== ======= ===========
</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 $134.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Shareholders of
MFS Utilities Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Utilities Series (the Series)
(one of the series constituting the MFS Variable Insurance Trust) as of
December 31, 1997, the related statement of operations for the year then
ended, the statements of changes in net assets for the two years then ended
and financial highlights for the two years ended December 31, 1997 and for the
period from January 3, 1995 (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 Utilities
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
VUF-2 2/98 18.7M
