<PAGE>
[Logo] M F S(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT JUNE 30, 1999
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) RESEARCH
SERIES
<PAGE>
MFS(R) RESEARCH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<TABLE>
<CAPTION>
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Private investor and real estate consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
ASSOCIATE DIRECTOR OF EQUITY RESEARCH contact your financial adviser.
Alec C. Murray*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
- --------------------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example,
investors focused on a narrow group of 50 of the largest-company growth stocks
because they seemed to offer less volatility in uncertain times. Fixed-income
investors also became more concerned about risk, moving money into U.S.
Treasury securities and out of corporate and municipal bonds and mortgage-
backed securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our
portfolio managers to find good values, and for us to show the benefits of
staying with our long-term objectives and strategies. Investors seem to be
regaining confidence in a wider range of companies. Stocks of some small and
mid-sized companies, as well as some large industrial companies, have begun to
perform better in the past few months than they had for the previous year or
so. These companies appear to have benefited from early signs of stability in
emerging markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to
14% this year because more companies have benefited from the strong economy
and from aggressive consolidation and cost-cutting measures they have taken
over the past several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a
wider group of stocks, many investors are still focusing on the large-company
stocks. As a result, most of the overvaluation is in the 50 largest stocks in
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance. That means about 450 stocks
are selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies
not in the S&P 500. These companies also benefit from consolidation, cost
cutting, and global growth. Because they are smaller, they may be able to
respond to these changes more quickly, and thus they have the potential to
grow faster than the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing
higher inflation and reduced purchasing power. Also, once investors saw that
the overseas turmoil had little, if any, effect on the financial strength of
most domestic bond issuers, the major non-Treasury markets -- corporate,
municipal, and mortgage -- began to rebound. Our portfolio managers are now
finding more opportunities to buy bonds with relatively stable prices and
attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly
defined investment strategies can help us offer investment products with the
potential to sustain returns over a variety of market cycles.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners,
For the six months ended June 30, 1999, the Series provided a total return of
8.85% (including the reinvestment of any distributions). This compares to a
12.23% return for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance, for the
same period.
The Series relies on MFS(R) Original Research(SM) to incorporate the best
ideas of our more than 30 equity analysts, who cover small-, mid-, and large-
cap companies; therefore, the portfolio is broadly diversified. However, the
equity market has, until recently, been very narrow, with 25 to 50 large-cap
growth stocks outperforming the rest of the stocks in the S&P 500. Because the
Series is diversified across all market capitalizations, it is not likely to
outperform in a market favoring a small group of stocks. As the market
continues to broaden, we expect the Series to benefit.
The Series currently has a light position, relative to the S&P 500, in the
largest large-cap growth stocks (companies with market capitalizations of $5
billion or more) and heavy positions in small- and mid-cap stocks, whose long-
term opportunities we think are more attractive. Small- and mid-cap stocks are
selling at much cheaper prices relative to earnings than large-cap growth
stocks. Stocks with lower prices relative to earnings are less vulnerable to
negative events such as earnings disappointments or a broad market downturn.
We think the companies in the Series will see higher growth rates than many of
the largest large-cap stocks. At the same time, we are avoiding most Internet
stocks or other companies trading at what we see as unsustainably high prices
relative to their earnings.
Two industry sectors have helped performance: financial services and
technology. The Series' gains in financial services largely came from
brokerage and investment banking stocks. Specifically, the Series had large
holdings in Morgan Stanley Dean Witter, which is well managed and experienced
in the markets it serves. Companies around the world are using firms like
Morgan Stanley to help arrange their mergers.
The leading contributors to technology performance were semiconductor
companies such as LSI Logic and Analog Devices. The semiconductor industry was
hurt in 1998 by the Asian economic slowdown as well as by the fact that it had
built up its manufacturing capability to a point at which there was too much
supply in some market segments, so prices came down. Now, demand is beginning
to catch up with supply and Asia seems to be recovering, both of which have
helped semiconductor companies.
The continuing strength of the U.S. economy has supported cyclical companies.
For example, the Series has benefited from its holding in the paper company
Bowater that is the number-two newsprint producer worldwide. Bowater recently
acquired a competitor, Avenor, which should give Bowater greater market share
as well as the cost-savings benefits that can come from consolidation. Bowater
is global in scope and has benefited from a favorable supply/demand
environment, which should result in price increases.
A few of the Series' retailing holdings have underperformed. Although the
retailing environment has been very good and Dayton Hudson, the department
store chain, has performed well, the Series was hurt by two stocks, Rite Aid
and CompUSA. We have had a significant position in Rite Aid because we believe
that as the population ages people will use more prescription medicines.
However, Rite Aid opened too many stores in a short period of time and
underestimated the costs of closing old stores. The company also had inventory
and accounting problems. Over the long term, however, we believe Rite Aid will
continue to benefit from increasing prescription sales. CompUSA, meanwhile, is
losing computer and software sales to companies that sell over the telephone
or on the Internet. Also, some business customers, who tend to buy more
expensive equipment, are cutting orders to prepare for any Year 2000 (Y2K)
computer problems. By the end of this year, we think the Y2K issue will
largely be resolved, and the company should perform better.
Respectfully,
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Series under the general supervision of Mr. Murray.
The opinions expressed in this report are those of the Associate Director of
Equity Research and are current only through the end of the period of the
report as stated on the cover. His views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
This report is prepared for the general information of contract owners. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other
MFS product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
SERIES FACTS
Objective: Seeks long-term growth of capital and future income.
Commencement of investment operations: July 26, 1995
Size: $733.5 million net assets as of June 30, 1999
PERFORMANCE SUMMARY
Because the Series is designed for investors with long-term goals, we have
provided the cumulative as well as the average annual total returns for the
applicable time periods. (See Notes to Performance Summary for more
information.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JUNE 30, 1999
6 Months 1 Year 3 Years Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +8.85% +13.00% +76.22% +118.57%
- --------------------------------------------------------------------------------
Average Annual Total Return -- +13.00% +20.79% + 22.00%
- --------------------------------------------------------------------------------
*For the period from the commencement of the Series' investment operations,
July 26, 1995, through June 30, 1999.
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and
capital gains. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Performance results reflect any
applicable expense subsidies and waivers, without which the results would have
been less favorable. Subsidies and waivers may be rescinded at any time. See
the prospectus for details.
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.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
Stocks - 97.6%
- ----------------------------------------------------------------------------
ISSUER SHARES VALUE
- ----------------------------------------------------------------------------
U.S. Stocks - 91.6%
Aerospace - 4.1%
Gulfstream Aerospace Corp.* 114,200 $ 7,715,637
Raytheon Co., "B" 71,900 5,059,963
United Technologies Corp. 239,500 17,169,156
------------
$ 29,944,756
- ----------------------------------------------------------------------------
Automotive - 0.9%
Federal-Mogul Corp. 128,600 $ 6,687,200
- ----------------------------------------------------------------------------
Banks and Credit Companies - 4.6%
Bank America Corp. 53,000 $ 3,885,563
Bank of New York Co., Inc. 159,100 5,836,981
Chase Manhattan Corp. 56,964 4,934,507
PNC Bank Corp. 130,800 7,537,350
US Bancorp 89,600 3,046,400
Wells Fargo Co. 202,050 8,637,637
------------
$ 33,878,438
- ----------------------------------------------------------------------------
Broadcasting - 0.7%
Infinity Broadcasting Corp.* 166,900 $ 4,965,275
- ----------------------------------------------------------------------------
Business Machines - 0.9%
Xerox Corp. 111,700 $ 6,597,281
- ----------------------------------------------------------------------------
Business Services - 0.5%
First Data Corp. 77,400 $ 3,787,763
Modis Professional Services, Inc.* 6,800 93,500
------------
$ 3,881,263
- ----------------------------------------------------------------------------
Chemicals - 0.2%
Cambrex Corp. 62,500 $ 1,640,625
- ----------------------------------------------------------------------------
Computer Hardware - Systems - 0.5%
Hewlett-Packard Co. 37,600 $ 3,778,800
- ----------------------------------------------------------------------------
Computer Software - Personal Computers - 4.9%
Intuit, Inc.* 1,600 $ 144,200
Microsoft Corp.* 395,200 35,642,100
------------
$ 35,786,300
- ----------------------------------------------------------------------------
Computer Software - Services - 2.1%
EMC Corp.* 95,100 $ 5,230,500
Sun Microsystems, Inc.* 148,000 10,193,500
------------
$ 15,424,000
- ----------------------------------------------------------------------------
Computer Software - Systems - 6.0%
BMC Software, Inc.* 213,700 $ 11,539,800
Cadence Design Systems, Inc.* 198,750 2,534,062
Citrix Systems, Inc.* 20,500 1,158,250
Computer Associates International, Inc. 77,425 4,258,375
Compuware Corp.* 177,900 5,659,444
Oracle Corp.* 451,450 16,760,081
Synopsys, Inc.* 33,800 1,865,338
------------
$ 43,775,350
- ----------------------------------------------------------------------------
Consumer Goods and Services - 8.2%
Clorox Co. 62,400 $ 6,665,100
Colgate-Palmolive Co. 39,500 3,900,625
Dial Corp. 143,100 5,321,531
Gillette Co. 146,600 6,010,600
Newell Rubbermaid, Inc. 120,700 5,612,550
Procter & Gamble Co. 114,300 10,201,275
Tyco International Ltd. 236,974 22,453,287
------------
$ 60,164,968
- ----------------------------------------------------------------------------
Containers - 0.7%
Owens Illinois, Inc.* 108,100 $ 3,533,519
Smurfit-Stone Container Corp.* 88,185 1,813,304
------------
$ 5,346,823
- ----------------------------------------------------------------------------
Electrical Equipment - 0.8%
Honeywell, Inc. 49,000 $ 5,677,875
- ----------------------------------------------------------------------------
Electronics - 4.0%
Analog Devices, Inc.* 327,766 $ 16,449,756
LSI Logic Corp.* 283,000 13,053,375
------------
$ 29,503,131
- ----------------------------------------------------------------------------
Entertainment - 4.2%
CBS Corp.* 88,200 $ 3,831,187
Comcast Corp., "A" 70,400 2,706,000
Disney (Walt) Co. 306,000 9,428,625
MediaOne Group, Inc.* 53,200 3,956,750
Time Warner, Inc. 151,600 11,142,600
------------
$ 31,065,162
- ----------------------------------------------------------------------------
Financial Institutions - 3.6%
Associates First Capital Corp., "A" 179,192 $ 7,940,445
CIT Group, Inc., "A" 77,500 2,237,812
Citigroup, Inc. 194,450 9,236,375
Goldman Sachs Group, Inc.* 6,500 469,625
Morgan Stanley Dean Witter & Co. 33,100 3,392,750
Providian Financial Corp. 17,500 1,636,250
Schwab (Charles) Corp. 16,100 1,768,988
------------
$ 26,682,245
- ----------------------------------------------------------------------------
Food and Beverage Products - 3.0%
Anheuser-Busch Cos., Inc. 80,400 $ 5,703,375
Bestfoods Co. 16,200 801,900
Coca-Cola Co. 72,200 4,512,500
Nabisco Holdings Corp., "A" 79,600 3,442,700
Ralston-Ralston Purina Co. 248,000 7,548,500
------------
$ 22,008,975
- ----------------------------------------------------------------------------
Forest and Paper Products - 0.5%
Bowater, Inc. 69,700 $ 3,293,325
- ----------------------------------------------------------------------------
Insurance - 6.2%
American International Group, Inc. 50,800 $ 5,946,775
CIGNA Corp. 93,000 8,277,000
Conseco, Inc. 103,290 3,143,889
Equitable Cos., Inc. 106,700 7,148,900
Hartford Financial Services Group, Inc. 107,200 6,251,100
Lincoln National Corp. 147,900 7,737,019
Nationwide Financial Services, Inc., "A" 57,000 2,579,250
ReliaStar Financial Corp. 106,414 4,655,613
------------
$ 45,739,546
- ----------------------------------------------------------------------------
Internet
Software.com, Inc.* 900 $ 20,869
- ----------------------------------------------------------------------------
Manufacturing - 1.0%
Danaher Corp. 131,800 $ 7,660,875
- ----------------------------------------------------------------------------
Medical and Health Products - 5.0%
American Home Products Corp. 240,500 $ 13,828,750
Bristol-Myers Squibb Co. 166,100 11,699,669
Pharmacia & Upjohn, Inc. 193,600 10,998,900
------------
$ 36,527,319
- ----------------------------------------------------------------------------
Medical and Health Technology and Services - 4.9%
Cardinal Health, Inc. 107,900 $ 6,919,087
Guidant Corp. 173,400 8,919,262
HealthSouth Corp.* 371,376 5,547,429
Medtronic, Inc. 82,900 6,455,838
United HealthCare Corp. 119,800 7,502,475
VISX, Inc.* 5,800 459,288
------------
$ 35,803,379
- ----------------------------------------------------------------------------
Oils - 2.1%
Atlantic Richfield Co. 8,200 $ 685,213
Conoco, Inc., "A" 126,700 3,531,762
Mobil Corp. 110,200 10,909,800
------------
$ 15,126,775
- ----------------------------------------------------------------------------
Printing and Publishing - 0.5%
Gannett Co., Inc. 54,300 $ 3,875,663
- ----------------------------------------------------------------------------
Restaurants and Lodging - 1.5%
CKE Restaurants, Inc. 200 $ 3,250
McDonald's Corp. 271,500 11,216,344
------------
$ 11,219,594
- ----------------------------------------------------------------------------
Special Products and Services - 1.0%
Backweb Technologies Ltd.* 2,900 $ 79,387
Carnival Corp. 83,200 4,035,200
Newport News Shipbuilding, Inc. 12,200 359,900
Phone.Com, Inc.* 5,400 302,400
SPX Corp.* 10,200 851,700
Verisign, Inc.* 18,900 1,630,125
------------
$ 7,258,712
- ----------------------------------------------------------------------------
Stores - 4.4%
CompUSA, Inc.* 143,800 $ 1,069,513
CVS Corp. 182,300 9,251,725
Dayton Hudson Corp. 65,200 4,238,000
Office Depot, Inc.* 180,050 3,972,353
Rite Aid Corp. 232,900 5,735,162
TJX Cos., Inc. 108,100 3,601,081
Wal-Mart Stores, Inc. 86,600 4,178,450
------------
$ 32,046,284
- ----------------------------------------------------------------------------
Supermarkets - 2.2%
Albertsons, Inc. 693 $ 35,733
Kroger Co.* 299,600 8,370,075
Safeway, Inc.* 157,000 7,771,500
------------
$ 16,177,308
- ----------------------------------------------------------------------------
Telecommunications - 11.0%
Bell Atlantic Corp. 205,800 $ 13,454,175
Cisco Systems, Inc.* 228,650 14,733,634
MCI WorldCom, Inc.* 210,841 18,145,504
Motorola, Inc. 141,200 13,378,700
Sprint Corp. 112,200 5,925,562
Sprint Corp. (PCS Group) 255,800 14,612,575
Tellabs, Inc.* 600 40,538
------------
$ 80,290,688
- ----------------------------------------------------------------------------
Utilities - Electric - 1.0%
CMS Energy Corp. 84,000 $ 3,517,500
Midamerica Energy Holdings Co. 107,700 3,729,112
------------
$ 7,246,612
- ----------------------------------------------------------------------------
Utilities - Gas - 0.4%
Columbia Energy Group 42,500 $ 2,664,219
- ----------------------------------------------------------------------------
Total U.S. Stocks $671,759,635
- ----------------------------------------------------------------------------
Foreign Stocks - 6.0%
Canada - 0.1%
Abitibi-Consolidated, Inc. (Forest and Paper
Products) 63,900 $ 726,863
- ----------------------------------------------------------------------------
France - 0.1%
Total Fina S.A., ADR (Oils) 14,100 $ 908,569
- ----------------------------------------------------------------------------
Germany - 0.8%
Mannesmann AG (Conglomerate) 39,200 $ 5,857,360
- ----------------------------------------------------------------------------
Spain - 0.5%
Repsol S.A. (Oils) 179,100 $ 3,654,337
- ----------------------------------------------------------------------------
Sweden - 1.3%
Ericsson LM, ADR (Telecommunication Equipment) 30,600 $ 1,007,887
Ericsson LM, "B" (Telecommunication Equipment) 271,100 8,707,538
------------
$ 9,715,425
- ----------------------------------------------------------------------------
Switzerland - 1.0%
UBS AG (Banks and Credit Cos.)* 25,400 $ 7,581,114
- ----------------------------------------------------------------------------
United Kingdom - 2.2%
BP Amoco PLC, ADR (Oils) 96,693 $ 10,491,191
British Aerospace PLC (Aerospace and Defense)* 3,913 25,469
Zeneca Group PLC (Medical and Health Products) 135,900 5,253,794
------------
$ 15,770,454
- ----------------------------------------------------------------------------
Total Foreign Stocks $ 44,214,122
- ----------------------------------------------------------------------------
Total Stocks (Identified Cost, $592,001,299) $715,973,757
- ----------------------------------------------------------------------------
Short-Term Obligations - 2.7%
- ----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- ----------------------------------------------------------------------------
Federal Home Loan Bank, due 7/01/99 $ 7,800 $ 7,800,000
Federal Home Loan Mortgage Corp., due 7/29/99 10,217 10,178,300
Federal National Mortgage Corp., due 7/22/99 1,783 1,777,935
- ----------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 19,756,235
- ----------------------------------------------------------------------------
Other Short-Term Obligations - 5.1%
- ----------------------------------------------------------------------------
SHARES
- ----------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio
(Identified Cost, $37,471,072) 37,471,072 $ 37,471,072
- ----------------------------------------------------------------------------
Total Investments (Identified Cost, $649,228,606) $773,201,064
Other Assets, Less Liabilities - (5.4)% (39,704,921)
- ----------------------------------------------------------------------------
Net Assets - 100.0% $733,496,143
- ----------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- -----------------------------------------------------------------------------
JUNE 30, 1999
- -----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $649,228,606) $773,201,064
Cash 51,583
Receivable for Series shares sold 1,279,179
Receivable for investments sold 6,349,935
Interest and dividends receivable 293,638
Deferred organization expenses 1,972
Other assets 4,618
------------
Total assets $781,181,989
------------
Liabilities:
Payable for Series shares reacquired $ 160,265
Payable for investments purchased 9,981,108
Collateral for securities loaned, at value 37,471,072
Payable to affiliates -
Management fee 14,900
Shareholder servicing agent fee 695
Administrative fee 298
Accrued expenses and other liabilities 57,508
------------
Total liabilities $ 47,685,846
------------
Net assets $733,496,143
============
Net assets consist of:
Paid-in capital $575,056,528
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 123,970,147
Accumulated undistributed net realized gain on investments
and foreign currency transactions 34,198,415
Accumulated undistributed net investment income 271,053
------------
Total $733,496,143
============
Shares of beneficial interest outstanding 35,809,117
==========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $20.48
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- ------------------------------------------------------------------------------
Net investment income (loss):
Income -
Dividends $ 2,426,665
Interest 553,194
Foreign taxes withheld (31,843)
------------
Total investment income $ 2,948,016
------------
Expenses -
Management fee $ 2,364,838
Trustees' compensation 1,123
Shareholder servicing agent fee 110,359
Administrative fee 47,296
Custodian fee 104,877
Printing 42,420
Auditing fees 16,350
Legal fees 1,002
Amortization of organization expenses 911
Miscellaneous 5,639
------------
Total expenses $ 2,694,815
Fees paid indirectly (18,039)
------------
Net expenses $ 2,676,776
------------
Net investment income $ 271,240
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 37,009,101
Foreign currency transactions (35,820)
------------
Net realized gain on investments and foreign
currency transactions $ 36,973,281
------------
Change in unrealized appreciation (depreciation) -
Investments $ 20,469,727
Translation of assets and liabilities in foreign
currency (1,688)
------------
Net unrealized gain on investments and foreign
currency translation $ 20,468,039
------------
Net realized and unrealized gain on investments
and foreign currency $ 57,441,320
------------
Increase in net assets from operations $ 57,712,560
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------------
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1999 1998
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 271,240 $ 1,340,092
Net realized gain on investments and foreign currency
transactions 36,973,281 5,907,819
Net unrealized gain on investments and foreign currency
translation 20,468,039 78,553,148
------------ ------------
Increase in net assets from operations $ 57,712,560 $ 85,801,059
------------ ------------
Distributions declared to shareholders -
From net investment income $ (1,317,597) $ (587,939)
From net realized gain on investments and foreign
currency transactions (6,962,893) (7,710,146)
------------ ------------
Total distributions declared to shareholders $ (8,280,490) $ (8,298,085)
------------ ------------
Net increase in net assets from Series share transactions $116,286,521 $204,429,719
------------ ------------
Total increase in net assets $165,718,591 $281,932,693
Net assets:
At beginning of period 567,777,552 285,844,859
------------ ------------
At end of period (including accumulated undistributed net
investment income of $271,053 and $1,317,410,
respectively) $733,496,143 $567,777,552
============ ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD ENDED
SIX MONTHS ENDED -------------------------------------- DECEMBER 31,
JUNE 30, 1999 1998 1997 1996 1995*
(UNAUDITED)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $19.05 $15.80 $13.13 $10.89 $10.00
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.01 $ 0.06 $ 0.05 $ 0.06 $ 0.05
Net realized and unrealized gain on
investments and foreign currency 1.67 3.59 2.62 2.37 1.01
------ ------ ------ ------ ------
Total from investment operations $ 1.68 $ 3.65 $ 2.67 $ 2.43 $ 1.06
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.04) $(0.03) $ -- $(0.02) $(0.03)
From net realized gain on investments
and foreign currency transactions (0.21) (0.37) -- (0.16) (0.14)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.01) --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.25) $(0.40) $ -- $(0.19) $(0.17)
------ ------ ------ ------ ------
Net asset value - end of period $20.48 $19.05 $15.80 $13.13 $10.89
====== ====== ====== ====== ======
Total return 8.85%++ 23.39% 20.26% 22.33% 10.62%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.86%+ 0.86% 0.92% 1.01% 1.02%+
Net investment income 0.09%+ 0.33% 0.34% 0.47% 1.15%+
Portfolio turnover 51% 83% 99% 56% 28%
Net assets at end of period (000
omitted) $733,496 $567,778 $285,845 $35,710 $2,530
(S) Prior to January 1, 1998, subject to reimbursement by the Series, the investment adviser agreed to
maintain the expenses of the Series, exclusive of management fees, at not more than 0.25% of average daily
net assets. To the extent actual expenses were over or under this limitation, the net investment income
(loss) per share and the ratios would have been:
Net investment income (loss) $ 0.06 $ -- $(0.08)
Ratios (to average net assets):
Expenses## 0.88% 1.48% 3.90%+
Net investment income (loss) 0.38% -- (1.73)%+
* 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 has an expense offset arrangement which reduces the Series' custodian fee based upon the amount
of cash maintained by the Series with its custodian and dividend disbursing agent. The Series' expenses
are calculated without reduction for this expense offset arrangement.
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Research Series (the Series) is a diversified series of MFS(R) Variable
Insurance Trust(SM) (the Trust) which comprises the following 15 series:
MFS(R) Bond Series, MFS(R) Capital Opportunities Series (formerly MFS(R) Value
Series), MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) Global Governments Series (formerly MFS(R) World
Governments Series), MFS(R) Global Equity Series, MFS(R) Growth Series, MFS(R)
Growth with Income Series, MFS(R) High Income Series, MFS(R) Limited Maturity
Series, MFS(R) Money Market Series, MFS(R) New Discovery Series, MFS Research
Series, MFS(R) Total Return Series, and MFS(R) Utilities 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 June 30, 1999 there were 65 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. 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 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 results 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.
Security Loans - The Series may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. State Street Bank and Trust Company ("State Street"), as
agent, loans the securities to certain brokers (the "Borrowers") approved by
the Series. The loans are collateralized at all times by cash in an amount at
least equal to the market value of the securities loaned. State Street
provides the Series with indemnification against Borrower default. The Series
bears the risk of loss with respect to the investment of cash collateral.
At June 30, 1999, the value of securities loaned was $37,258,568. These loans
were collateralized by cash of $37,471,072. Cash collateral is invested in
short-term securities, which are included in the Portfolio of Investments. A
portion of the income generated upon investment of the collateral is remitted
to the Borrowers, and the remainder is allocated between the Series and State
Street in its capacity as lending agent. Income from securities lending is
included in interest income on the Statement of Operations. The dividend and
interest income earned on the securities loaned is accounted for in the same
manner as other dividend and interest income.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is 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 payments received in additional securities are
recorded on the ex-dividend 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' month end 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.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
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 distributions from paid-in
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 net realized gains.
(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 the Series' average daily net assets.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service
Center, Inc. (MFSC).
Administrator - 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:
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 U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$422,433,362 and $312,247,390, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Series, as computed on a federal income tax basis,
are as follows:
Aggregate cost $649,228,606
------------
Gross unrealized appreciation $136,002,210
Gross unrealized depreciation (12,029,752)
------------
Net unrealized appreciation $123,972,458
============
(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. Transactions in
Series' shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 YEAR ENDED DECEMBER 31, 1998
------------------------------ ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,817,623 $151,420,628 14,540,832 $251,911,169
Shares issued to shareholders in
reinvestment of distributions 422,259 8,280,489 472,018 8,298,082
Shares reacquired (2,236,836) (43,414,596) (3,301,687) (55,779,532)
---------- ------------ ---------- ------------
Net increase 6,003,046 $116,286,521 11,711,163 $204,429,719
========== ============ ========== ============
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series' shares. Interest is charged to each Series, based on its borrowings,
at a rate equal to the bank's base rate. In addition, a commitment fee, based
on the average daily unused portion of the line of credit, is allocated among
the participating funds at the end of each quarter. The commitment fee
allocated to the Series for the six months ended June 30, 1999, was $2,488.
The Series had no significant borrowings during the period.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VFR-3 8/99 133M