<PAGE>
[logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS ANNUAL REPORT
WE INVENTED THE MUTUAL FUND(R) DECEMBER 31, 1998
[graphic omitted]
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) VALUE SERIES
<PAGE>
MFS(R) VALUE SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive 500 Boylston Street
Officer, and Director, MFS Boston, MA 02116-3741
Investment Management(R)
DISTRIBUTOR
Nelson J. Darling, Jr. MFS Fund Distributors, Inc.
Professional Trustee 500 Boylston Street
Boston, MA 02116-3741
William R. Gutow
Vice Chairman, SHAREHOLDER SERVICE CENTER
Capitol Entertainment MFS Service Center, Inc.
Management Company; P.O. Box 2281
Real Estate Consultant Boston, MA 02107-9906
PORTFOLIO MANAGER For additional information,
John F. Brennan, Jr.* contact your financial adviser.
CHAIRMAN AND PRESIDENT CUSTODIAN
Jeffrey L. Shames* State Street Bank and Trust Company
TREASURER AUDITORS
W. Thomas London* Deloitte & Touche LLP
ASSISTANT TREASURERS WORLD WIDE WEB
Mark E. Bradley* www.mfs.com
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
- -------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners:
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund
- -- our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management(R), the company that
grew out of that original fund, has helped guide shareholders through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of December 31, 1998,
MFS manages nearly $100 billion, and the firm's 2,000 people serve almost four
million investors and their financial advisers worldwide.
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This innovation meant that if
you wanted to sell your investment in any MFS mutual fund, you would have the
security of knowing that you could do so immediately by exchanging into
another MFS fund. Or, if you needed your money for other purposes, it could
quickly be wired or mailed to you. This daily redemption feature, through
which new shares were created when people invested in MIT and were redeemed
when people sold, brought another important change to the industry. Now, the
price of a mutual fund's shares wasn't determined by supply and demand, but by
the value of the securities owned by the fund.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike companies that rely on
Wall Street research reports, which can be used by many investors at the same
time, MIT's managers built its long-term track record by visiting companies,
talking to managers and competitors, and "kicking the tires" so they could
judge the quality and potential of each company's products and services for
themselves. Today, MFS has more than 100 full-time portfolio managers, stock
analysts, and credit analysts who track the equity and bond markets. That
number includes over 35 equity analysts who specialize in industries such as
aviation, media, technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, first
high-yield municipal bond fund, and first high-yield municipal closed-end bond
fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. 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
January 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Dear Shareholders:
For the 12 months ended December 31, 1998, the Series provided a total return
of 26.80% (including the reinvestment of any distributions). This compares to
a 28.58% return for the Standard & Poor's 500 Composite Index (the S&P 500), a
popular, unmanaged index of common stock total return performance.
In general, the Series has benefited from good industry selection as well as
good stock selection. Although the Series was slightly underweighted relative
to the S&P 500 in technology and health care, two of the strongest-performing
sectors in the index, it was significantly overweighted in retailing, one of
the best-performing sectors. At the same time, the Series was significantly
underweighted in basic materials, transportation, and energy, all of which
were among the worst-performing sectors.
Among stocks, the Series has had strong performance from several of its top
holdings, including Tyco, Federal Home Loan Mortgage Corp. (Freddie Mac), Fred
Meyer, CBS, and Compuware.
Changes in the portfolio included a reduction in the pharmaceutical weighting
because prices reached what we believe are full valuations and an increase in
the weighting in health maintenance organizations in anticipation of an
industry rebound. We've recently made purchases in the technology sector,
including BMC Software, Oracle, and Compuware, at attractive prices. In
financial services, the portfolio's largest sector, we reduced the Series'
regional bank exposure but added several companies, including Freddie Mac,
Associates First Capital, and State Street Bank and Trust Co. We think many
financial services companies offer solid double-digit growth and attractive
valuations. In addition, the performance of these companies has tended to be
good during periods of declining interest rates and slow economic growth,
particularly when their asset quality has remained intact.
Our international investment approach parallels our domestic objective of
finding long-term growth at attractive valuations. The Series has gotten good
performance from some of its major European holdings, including Sanofi,
Mannesmann, and Cellular Communications International, a U.S. company with
extensive operations in Europe.
Going forward, we anticipate continued slow growth and low inflation in 1999.
Further Federal Reserve Board easing could occur if the economy slows
significantly, since the threat of inflation has been largely subdued.
Although the recent slowdown in real estate markets, as well as the sharp
decline in most commodity prices, has dampened inflation, the equity markets
continue to trade at extremely high valuations. We feel any unforeseen
deterioration in the outlook for corporate profits or any increase in
inflation could result in a decline in stock prices. Meanwhile, foreign
affairs will continue to impact U.S. equity markets. Currently, we think the
Asian outlook appears to have stabilized, but Latin American economies are
highly unpredictable, and there is continued uncertainty surrounding Brazil.
The dramatic decline in most commodity prices will make it difficult to
justify price increases, which could make it hard for many companies to
achieve significant earnings growth. Finally, we think that Year 2000 systems
compliance, as well as the conversion to the new European currency, the euro,
could dampen growth in 1999 as companies undertake significant testing to
ensure smooth operations.
Respectfully,
/s/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
John F. Brennan, Jr., is Senior Vice President of MFS Investment Management(R)
and portfolio manager of MFS(R) Capital Opportunities Fund. He also manages the
Capital Opportunities Series offered through MFS(R)/Sun Life annuity products,
MFS(R) Value Series (part of MFS(R) Variable Insurance Trust(SM)), and the
equity portion of MFS(R) Special Value Trust, a closed-end fund.
Mr. Brennan joined MFS in 1985 as an industry specialist in the Research
Department. He was named Assistant Vice President -- Investments in 1987, Vice
President -- Investments in 1988, portfolio manager of MFS(R) Capital
Opportunities Fund in 1991, and Senior Vice President in 1995. Mr. Brennan is
a graduate of the University of Rhode Island and the Stanford University
Graduate School of Business Administration.
OBJECTIVE AND POLICIES
The Series' investment objective is to seek capital appreciation.
Commencement of investment operations: August 14, 1996
Size: $23.9 million net assets as of December 31, 1998
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>
PERFORMANCE SUMMARY
The information below illustrates the historical performance of the Series 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, 1998)
MFS S&P 500 Consumer Price
Value Composite Index
Fund Index - U.S.
- ----------------------------------------------------------
9/96 $10,000 $10,000 $10,000
12/96 10,880 11,440 10,090
12/97 13,760 15,260 10,260
12/98 17,444 19,622 10,441
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year 10 Years/Life
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MFS Value Series* +26.80% +26.33%
- ---------------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index** +28.58% +33.52%
- ---------------------------------------------------------------------------------------------------------------------------
Consumer Price Index**(+) + 1.80% + 1.87%
- ---------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations, August 14, 1996, through December 31, 1998.
** Source: CDA/Wiesenberger. "Life" refers to the period from September 1, 1996, through December 31, 1998.
(+) The Consumer Price Index is published by the U.S. Bureau of Labor Statistics and measures the cost of living (inflation).
</TABLE>
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 SHARES, 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 - December 31, 1998
Stocks - 86.9%
- -----------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------
U.S. Stocks - 72.4%
Advertising - 1.0%
Outdoor Systems, Inc.* 7,850 $ 235,500
- -----------------------------------------------------------------------------
Automotive - 0.3%
Tower Automotive, Inc.* 3,335 $ 83,167
- -----------------------------------------------------------------------------
Banks and Credit Companies - 5.3%
Bankers Trust Corp. 1,800 $ 153,787
Fleet Financial Group, Inc. 3,046 136,118
National City Corp. 2,642 191,545
PNC Bank Corp. 2,394 129,575
State Street Corp. 3,900 271,294
US Bancorp 5,430 192,765
Wells Fargo Co.* 4,790 191,301
-----------
$ 1,266,385
- -----------------------------------------------------------------------------
Broadcasting - 0.2%
Infinity Broadcasting Corp.* 1,500 $ 41,062
- -----------------------------------------------------------------------------
Business Machines - 1.0%
International Business Machines Corp. 1,300 $ 240,175
- -----------------------------------------------------------------------------
Business Services - 0.3%
DST Systems, Inc.* 620 $ 35,379
Modis Professional Services, Inc.* 1,938 28,101
-----------
$ 63,480
- -----------------------------------------------------------------------------
Computer Software -- Systems - 6.3%
BMC Software, Inc.* 8,310 $ 370,314
Cadence Design Systems, Inc.* 200 5,950
Computer Associates International, Inc. 13,989 596,281
Compuware Corp.* 660 51,563
Network Associates, Inc.* 1,100 72,875
Oracle Corp.* 6,582 283,849
Synopsys, Inc.* 2,300 124,775
-----------
$ 1,505,607
- -----------------------------------------------------------------------------
Construction Services - 0.6%
Martin Marietta Materials, Inc. 2,363 $ 146,949
- -----------------------------------------------------------------------------
Consumer Goods and Services - 8.4%
Galileo International, Inc.* 2,629 $ 114,361
Tyco International Ltd. 24,969 1,883,599
-----------
$ 1,997,960
- -----------------------------------------------------------------------------
Containers
Smurfit Stone Container Corp.* 700 $ 11,069
- -----------------------------------------------------------------------------
Electronics - 4.2%
AMP, Inc. 12,000 $ 624,750
Analog Devices, Inc.* 6,233 195,561
Lattice Semiconductor Corp.* 4,200 192,806
-----------
$ 1,013,117
- -----------------------------------------------------------------------------
Entertainment - 7.4%
CBS Corp. 17,694 $ 579,479
Disney (Walt) Co. 1,640 49,200
Harrah's Entertainment, Inc.* 17,316 271,645
Isle Capri Casinos, Inc.* 579 2,298
Jacor Communications, Inc.* 5,822 374,791
MediaOne Group, Inc.* 9,058 425,726
Mirage Resorts, Inc.* 3,837 57,315
-----------
$ 1,760,454
- -----------------------------------------------------------------------------
Financial Institutions - 8.0%
Associates First Capital Corp., "A" 8,560 $ 362,730
Donaldson, Lufkin & Jenrette, Inc. 2,900 118,900
Federal Home Loan Mortgage Corp. 15,617 1,006,320
Finova Group, Inc. 4,800 258,900
Paine Webber Group, Inc. 2,800 108,150
SLM Holding Corp. 1,260 60,480
-----------
$ 1,915,480
- -----------------------------------------------------------------------------
Food and Beverage Products - 3.1%
Anheuser Busch Cos., Inc. 2,800 $ 183,750
Archer-Daniels-Midland Co. 8,107 139,339
Beverly Enterprises, Inc.* 10,480 70,740
Hershey Foods Corp. 3,247 201,923
Hormel Foods Corp. 3,180 104,145
Suiza Foods Corp.* 800 40,750
-----------
$ 740,647
- -----------------------------------------------------------------------------
Insurance - 4.4%
Aetna, Inc. 1,300 $ 102,212
Annuity & Life Re Holdings Ltd. 5,123 137,681
Chartwell Re Corp. 1,908 45,315
CIGNA Corp. 1,112 85,972
Equitable Cos., Inc. 2,000 115,750
Hartford Financial Services Group, Inc. 2,449 134,389
Nationwide Financial Services, Inc., "A" 4,121 213,004
ReliaStar Financial Corp. 4,961 228,826
-----------
$ 1,063,149
- -----------------------------------------------------------------------------
Medical and Health Products - 0.5%
Bristol-Myers Squibb Co. 920 $ 123,107
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 2.0%
Mid Atlantic Medical Services, Inc.* 7,100 $ 69,669
United Healthcare Corp. 9,504 409,266
-----------
$ 478,935
- -----------------------------------------------------------------------------
Oils - 0.5%
Mobil Corp. 1,300 $ 113,262
- -----------------------------------------------------------------------------
Railroads - 0.2%
Kansas City Southern Industries, Inc. 900 $ 44,269
- -----------------------------------------------------------------------------
Restaurants and Lodging - 1.4%
Promus Hotel Corp.* 10,027 $ 324,624
- -----------------------------------------------------------------------------
Stores - 2.6%
Rite Aid Corp. 12,432 $ 616,161
- -----------------------------------------------------------------------------
Supermarkets - 4.6%
Meyer (Fred), Inc.* 18,209 $ 1,097,092
- -----------------------------------------------------------------------------
Telecommunications - 9.9%
3Com Corp.* 3,500 $ 156,844
AirTouch Communications, Inc.* 3,459 249,480
Alltel Corp. 4,310 257,792
American Tower Corp., "A"* 1,259 37,219
Cellular Communications International, Inc.* 14,590 992,120
Century Telephone Enterprises, Inc. 3,179 214,582
Intermedia Communications, Inc.* 2,514 43,367
Sprint Corp. 745 62,673
Sprint PCS* 4,500 104,063
Tele-Communications, Inc. 4,500 248,906
-----------
$ 2,367,046
- -----------------------------------------------------------------------------
Utilities -- Gas - 0.2%
Columbia Energy Group 937 $ 54,112
- -----------------------------------------------------------------------------
Total U.S. Stocks $17,302,809
- -----------------------------------------------------------------------------
Foreign Stocks - 14.5% Bermuda - 1.0%
Ace Ltd. (Insurance) 4,976 $ 171,361
EXEL Ltd., "A" (Insurance) 869 65,175
-----------
$ 236,536
- -----------------------------------------------------------------------------
Brazil - 0.9%
Tele Sudeste Celular Participacoes S.A.
(Telecommunications)* 1,300 $ 26,894
Tele Sudeste Celular Participacoes S.A.,
Preferred (Telecommunications)* 14,500 61,217
Telesp Celular Participacoes S.A.
(Telecommunications)* 2,400 42,000
Telesp Celular Participacoes S.A., Preferred
(Telecommunications)* 6,300 46,415
Telesp Participacoes S.A. (Telecommunications)* 1,664 37,881
-----------
$ 214,407
- -----------------------------------------------------------------------------
Finland - 1.0%
Nokia Corp., ADR (Telecommunications) 2,000 $ 240,875
- -----------------------------------------------------------------------------
France - 1.9%
Sanofi S.A. (Medical and Health Products) 2,640 $ 434,141
Societe Industrielle de Transports
Automobiles S.A. (Hazardous Waste) 53 13,879
-----------
$ 448,020
- -----------------------------------------------------------------------------
Germany - 2.5%
Henkel KGaA (Chemicals) 543 $ 48,505
Mannesmann AG (Conglomerate) 4,770 546,205
-----------
$ 594,710
- -----------------------------------------------------------------------------
Grand Cayman Islands - 0.2%
Scottish Annuity & Life (Insurance) * 3,200 $ 44,000
- -----------------------------------------------------------------------------
Greece - 0.5%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 4,450 $ 118,338
- -----------------------------------------------------------------------------
Italy - 0.8%
Telecom Italia S.p.A. (Telecommunications)* 28,805 $ 181,405
- -----------------------------------------------------------------------------
Netherlands - 1.8%
Benckiser N.V., "B" (Consumer Goods and Services) 1,029 $ 67,341
Elsag Bailey Process Automation N.V. (Machinery)* 6,243 244,257
Mobistar S.A. (Telecommunications)* 2,260 113,969
-----------
$ 425,567
- -----------------------------------------------------------------------------
Sweden - 0.4%
Saab AB, "B" (Aerospace)* 10,300 $ 107,820
- -----------------------------------------------------------------------------
Switzerland - 0.9%
Amoco Corp. (Oils) 3,700 $ 218,300
- -----------------------------------------------------------------------------
United Kingdom - 2.6%
British Petroleum PLC, ADR (Oils) 2,464 $ 234,080
Capital Radio PLC (Broadcasting) 3,280 31,831
Reuters Group PLC (Business Services) 2,670 28,126
Reuters Group PLC, ADR (Business Services) 1,640 103,935
SmithKline-Beecham PLC, ADR (Medical and Health
Products) 1,540 107,030
Taylor Nelson Sofres PLC (Market Research) 7,080 8,985
Zeneca Group PLC (Medical and Health Products) 2,700 117,440
-----------
$ 631,427
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 3,461,405
- -----------------------------------------------------------------------------
Total Stocks (Identified Cost, $17,260,821) $20,764,214
- -----------------------------------------------------------------------------
Put Options Purchased -- 3.5%
- -----------------------------------------------------------------------------
NUMBER OF
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE CONTRACTS
- -----------------------------------------------------------------------------
S & P 500 Index/December/400 (Premiums Paid,
$914,712) 47 $ 827,200
- -----------------------------------------------------------------------------
Short-Term Obligations -- 8.8%
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -----------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due
1/04/99 at Amortized Cost $ 2,115 $ 2,114,207
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $20,289,740) $23,705,621
Other Assets, Less Liabilities -- 0.8% 202,708
- -----------------------------------------------------------------------------
Net Assets -- 100.0% $23,908,329
- -----------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $20,289,740) $23,705,621
Cash 5,929
Foreign currency, at value (identified cost, $13) 13
Receivable for Series shares sold 79,384
Receivable for investments sold 704,455
Dividends receivable 12,200
Deferred organization expenses 4,825
-----------
Total assets $24,512,427
-----------
Liabilities:
Payable for Series shares reacquired $ 14,272
Payable for investments purchased 579,989
Net payable for forward currency exchange contracts
subject to master netting agreements 2,282
Payable to affiliates -
Management fee 484
Shareholder servicing agent fee 30
Accrued expenses and other liabilities 7,041
-----------
Total liabilities $ 604,098
-----------
Net assets $23,908,329
===========
Net assets consist of:
Paid-in capital $20,340,679
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 3,413,745
Accumulated undistributed net realized gain on
investments and foreign currency transactions 153,032
Accumulated undistributed net investment income 873
-----------
Total $23,908,329
===========
Shares of beneficial interest outstanding 1,616,802
=========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $14.79
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 102,352
Interest 65,413
Foreign taxes withheld (3,418)
----------
Total investment income $ 164,347
----------
Expenses -
Management fee $ 101,832
Trustees' compensation 1,971
Shareholder servicing agent fee 4,728
Administrative fee 1,501
Custodian fee 11,783
Printing 20,927
Postage 5
Auditing fees 3,821
Legal fees 1,859
Amortization of organization expenses 1,837
----------
Total expenses $ 150,264
Fees paid indirectly (3,060)
Reduction of expenses by investment adviser (11,429)
----------
Net expenses $ 135,775
----------
Net investment income $ 28,572
----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $ 208,494
Foreign currency transactions 982
----------
Net realized gain on investments and foreign
currency transactions $ 209,476
----------
Change in unrealized appreciation (depreciation) -
Investments $3,055,205
Translation of assets and liabilities in foreign
currencies (2,307)
----------
Net unrealized gain on investments and foreign
currency translation $3,052,898
----------
Net realized and unrealized gain on investments
and foreign currency $3,262,374
----------
Increase in net assets from operations $3,290,946
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 28,572 $ 39,133
Net realized gain on investments and foreign currency
transactions 209,476 659,848
Net unrealized gain on investments and foreign currency
translation 3,052,898 287,712
----------- ----------
Increase in net assets from operations $ 3,290,946 $ 986,693
----------- ----------
Distributions declared to shareholders -
From net investment income $ (28,505) $ (37,655)
From net realized gain on investments and foreign currency
transactions (19,522) (640,159)
From capital -- (53,104)
----------- ----------
Total distributions declared to shareholders $ (48,027) $ (730,918)
----------- ----------
Net increase in net assets from Series share transactions $15,005,582 $4,052,798
----------- ----------
Total increase in net assets $18,248,501 $4,308,573
Net assets:
At beginning of year 5,659,828 1,351,255
----------- ----------
At end of year (including accumulated undistributed
(distributions in excess of) net investment income of $873
and $(176), respectively) $23,908,329 $5,659,828
=========== ==========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
<CAPTION>
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $11.68 $10.66 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.03 $ 0.12 $ 0.07
Net realized and unrealized gain on investments and foreign
currency 3.11 2.66 0.88
------ ------ ------
Total from investment operations $ 3.14 $ 2.78 $ 0.95
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.02) $(0.09) $(0.03)
From net realized gain on investments and foreign currency
transactions (0.01) (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 $(0.03) $(1.76) $(0.29)
------ ------ ------
Net asset value - end of period $14.79 $11.68 $10.66
====== ====== ======
Total return 26.80% 26.47% 8.78%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.02% 1.02% 1.02%+
Net investment income 0.21% 0.91% 1.72%+
Portfolio turnover 144% 270% 44%
Net assets at end of period (000 omitted) $23,908 $5,660 $1,351
* For the period from the commencement of the Series' investment operations, August 14, 1996, through December 31, 1996.
+ 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.
(S) 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 this limitation,
the net investment income (loss) per share and ratios would have been:
Net investment income (loss) $ 0.02 $(0.02) $(0.04)
Ratios (to average net assets):
Expenses## 1.11% 2.08% 3.83%+
Net investment income (loss) 0.12% (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 Variable Insurance
Trust (the Trust) which is comprised of the following 13 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) New
Discovery Series, MFS(R) Research Series, MFS(R) Total Return Series, MFS(R)
Utilities Series, MFS(R) Value Series, and MFS(R) World Governments Series. The
Trust is organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The shareholders of each series of the Trust are separate accounts of
insurance companies which offer variable annuity and/or life insurance products.
As of December 31, 1998, there were eleven 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 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, and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. 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 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.
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 may enter into forward contracts for hedging purposes as well as for
non-hedging 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 non-hedging 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 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.
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 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' 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.
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 net realized gains. During
the year ended December 31, 1998, accumulated net investment income increased
by $982, accumulated undistributed net realized gain on investments and
foreign currency transactions increased by $21,793, and paid-in capital
decreased by $22,775 due to differences between book and tax accounting for
currency transactions and return of capital distributions. This change had no
effect on the net assets or net asset value per share. At December 31, 1998,
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 annual rate of 0.75%
of the Series' 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, 1998, the aggregate unreimbursed expenses owed to
MFS by the Series amounted to $69,340.
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Fund, 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 PURCHASED OPTION TRANSACTIONS
AND SHORT-TERM OBLIGATIONS, WERE AS FOLLOWS:
PURCHASES SALES
- ------------------------------------------------------------------------------
U.S. government securities $ 675,837 $ 8,269
----------- -----------
Investments (non-U.S. government securities) $29,616,668 $17,805,122
----------- -----------
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 $20,327,269
-----------
Gross unrealized appreciation $ 3,948,955
Gross unrealized depreciation (570,603)
-----------
Net unrealized appreciation $ 3,378,352
===========
(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>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,423,149 $18,806,882 779,105 $9,843,861
Shares issued to shareholders in
reinvestment of distributions 3,280 48,045 63,945 730,892
Shares reacquired (293,995) (3,849,345) (485,405) (6,521,955)
--------- ----------- ------- ----------
Net increase 1,132,434 $15,005,582 357,645 $4,052,798
========= =========== ======= ==========
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in an $805 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, 1998, was $105.
(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 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 payable of $2,282 with Merrill Lynch & Co. at December 31,
1998.
At December 31, 1998, 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, 1998, 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, 1998 and
1997, and the financial highlights for the years ended December 31, 1998 and
1997 and the period from August 14, 1996 (commencement of investment of
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 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, 1998 by correspondence with the custodian; where confirms not
received, 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 the MFS Value Series
at December 31, 1998, 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 4, 1999
<PAGE>
FEDERAL TAX INFORMATION
The Series has designated $19,522 as a capital gain dividend.
For the year ended December 31, 1998, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations came to
54.56%.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VVS-2 2/99 15M
