<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)/FOREIGN &
COLONIAL EMERGING
MARKETS EQUITY
SERIES
<PAGE>
MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY 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 MANAGERS For additional information,
Arnab Kumar Banerji* contact your financial adviser.
Jeffrey Chowdhry*
CUSTODIAN
CHAIRMAN AND PRESIDENT State Street Bank and Trust Company
Jeffrey L. Shames*
AUDITORS
TREASURER Deloitte & Touche LLP
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
- -------------------------------------------------------------------------------
<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 Contract Owners:
For the 12 months ended December 31, 1998, the Series provided a total return
of -33.37% (including the reinvestment of any distributions). This compares to
returns of -26.87% for the Lipper Emerging Markets Funds Index (the Lipper
Index) and -23.81% for the Morgan Stanley Capital International (MSCI)
Emerging Markets Free (EMF) Index. The Lipper mutual fund indices are
unmanaged indices of the largest qualifying mutual funds within their
respective investment objectives adjusted for the reinvestment of capital gain
distributions and income dividends, while the MSCI EMF Index is a broad,
unmanaged, market-capitalization-weighted index of equities in emerging
markets.
Although the Series benefited from an overweighting in Egypt and Mauritius, as
well as from underweighting in Brazil, overweighting in Russia hurt
performance, as did an underweighting in Greece.
Until recently emerging markets had enjoyed the fastest growth in the world,
driven by a combination of cheap labor, new technology applications, and
access to cheap capital. The first two factors are now in greater abundance
than ever, but access to capital has, for the past year, been notably absent.
However, it is now in the interest of the major world economic powers to
stabilize the global financial system. Thus, we believe that further interest-
rate cuts will be forthcoming from the group of seven major industrialized
countries, or G7. It is worth remembering that even a marginal change in
sentiment can have a dramatic impact on emerging market performance. For
example, from the end of August through the end of November, emerging markets,
as represented by the MSCI EMF Index, rallied by 26.7% in U.S. dollar terms.
Although we see signs in some places that the problems in Asia are being
addressed, the Series remains significantly underweighted in Asia with, for
example, zero exposure in Malaysia and Indonesia, both of which have rejected
market demands for economic reform. In contrast, corporate South Korea has
finally started to restructure due to pressure from a new government and an
International Monetary Fund (IMF) rescue package. A debt rescheduling
agreement was signed in early 1998, and a number of the Korean "Chaebol"
conglomerates have started to reorganize. Thailand has also reacted positively
to IMF demands, and its macroeconomic picture has gradually improved during
1998, with interest rates declining.
China, meanwhile, continues to be one of the best economic stories in the
region. Its government has correctly concluded that economic recovery will be
driven domestically rather than by exports and is attempting to grow through
infrastructure spending. It is uncertain how soon the effects of this will
feed through to corporate China, but we believe companies like Huaneng Power
will be among the first to benefit. Elsewhere, although Singapore's role as
one of the main service centers in Asia could continue to hamper growth, its
corporate sector is strong, and no bankruptcies are expected. We think
valuations are still attractive, and there are encouraging signs on the
corporate governance front, with Singapore Press providing the first-ever
example of a share buyback in the country.
Meanwhile, economic problems seem to have deepened in Russia, which
experienced a series of crises over the past year, with two changes of prime
minister and President Yeltsin looking increasingly marginalized. Weak oil
prices threw the country's fiscal viability into question, and the
intransigence of the Russian parliament jeopardized attempts at reform. By
summer, it became clear that the Russians would not be able to maintain
control in the debt markets without substantial assistance from the IMF and
the G7. Eventually, a package was agreed to, but it turned out to be too
little too late. The Russian government, realizing its predicament, reacted by
devaluing its currency and suspending interest payments on ruble-denominated
debt. The latest government is working on a plan to reschedule the entire
ruble-denominated sovereign debt. It is unclear how successful this will be
but, with the stock market at such depressed levels, the potential for
substantial gains exists. As a result, the Series retains a small exposure to
the Russian market.
Given this environment, stock selection has proved to be particularly
challenging in emerging markets. However, there have been several notable
success stories throughout the portfolio, including: the state Bank of
Mauritius, that country's second-largest commercial bank; and Telecom
Argentina, an integrated telecommunications provider.
Looking ahead, our outlook for emerging markets remains mixed. As world growth
slows, the uncertainty created by the deflationary outlook has given investors
an extreme aversion to risk. The credit crunch across most of Asia has
deepened with the worsening of Japan's financial crisis, and the cost of
capital has risen sharply. Although market volatility is likely to persist in
the short term, we believe that the current environment presents investors
with some outstanding long-term buying opportunities. The Series remains fully
invested to take advantage of what we see as a positive medium-term outlook,
with a slight bias away from Asia toward Latin America and the European,
Middle Eastern, and African regions.
Respectfully,
/s/ Arnab Kumar Banerjii /s/ Jeffrey Chowdhry
Arnab Kumar Banerjii Jeffrey Chowdhry
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' 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 MANAGERS' PROFILES
Jeffrey Chowdhry is a director of Foreign & Colonial Emerging Markets Ltd. and
portfolio manager of MFS(R)/Foreign & Colonial Emerging Markets Equity Fund,
and the Emerging Markets Equity Series offered through MFS(R)/Sun Life annuity
products and MFS(R) Variable Insurance Trust(SM). He also manages the emerging
markets portion of MFS(R) Global Growth Fund and the World Growth Series
offered though MFS(R)/Sun Life annuity products. Mr. Chowdhry is head of the
department at Foreign & Colonial that invests in Eastern Europe, the Middle
East and Africa. Mr. Chowdhry began his career as an investment analyst in
1982, joining Royal Insurance PLC in 1985 as a fund manager before joining BZW
Investment Management in 1987, where he was a Director in their emerging
markets division. He joined Foreign & Colonial Emerging Markets in 1994. He
has managed investments in the United States, Europe, Latin America and Asia.
Mr. Chowdhry holds a bachelor's degree in economics from Brunel University in
London and a Master of Business Administration from Kingston Business School
in England.
Arnab Kumar Banerji is Chief Investment Officer of Foreign & Colonial
Management Ltd. and portfolio manager of MFS(R)/Foreign & Colonial Emerging
Markets Equity Fund. He also manages the emerging markets portion of MFS(R)
Global Growth Fund, the Emerging Markets Equity Series, and the emerging
markets portion of the World Growth Series offered through MFS(R)/Sun Life
annuity products, and MFS(R)/Foreign & Colonial Emerging Markets Equity
Series, part of MFS(R) Variable Insurance Trust(SM). Dr. Banerji was born in
India in 1956. He earned degrees in physiology and medicine from Oxford
University before entering the investment management business with J. Henry
Schroder Wagg in London. He left that firm to become a research analyst and
later director of Nomura Securities. He joined Citibank, initially as head of
equity research at Citibank Scrimgeour Vickers, before moving to Citibank
Global Asset Management to set up their emerging markets operation, which he
headed until 1993 when he joined Foreign & Colonial.
OBJECTIVE AND POLICIES
The Series' investment objective is to seek capital appreciation.
Commencement of investment operations: October 16, 1997
Size: $1.4 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 November 1, 1997, through December 31, 1998)
MFS/Foreign Consumer Price MSCI Lipper
& Colonial Emerging Index EMF Emerging Markets
Markets Equity Series - U.S. Index Fund Index
----------------------------------------------------------------------
11/97 $10,000 $10,000 $10,000 $ 9,543
12/97 9,000 9,980 9,860 9,630
12/98 5,997 10,161 7,513 7,042
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 Year 10 Years/Life
- -------------------------------------------------------------------------------
MFS(R)/Foreign & Colonial Emerging Markets
Equity Series* -33.37% -34.51%
- -------------------------------------------------------------------------------
MSCI EMF Index** -23.81% -21.87%
- -------------------------------------------------------------------------------
Lipper Emerging Markets Fund Index# -26.87% -25.90%
- -------------------------------------------------------------------------------
Consumer Price Index+** + 1.80% + 1.39%
- -------------------------------------------------------------------------------
* For the period from the commencement of the Series' investment operations,
October 16, 1997, through December 31, 1998.
** Source: CDA/Wiesenberger. "Life" refers to the period from November 1, 1997,
through December 31, 1998.
# Source: Lipper Analytical Services, Inc. "Life" refers to the period from
November 1, 1997, 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).
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. 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.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility.
<PAGE>
PORTFOLIO OF INVESTMENTS - December 31, 1998
<TABLE>
Stocks - 90.1%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argentina - 3.8%
Siderca S.A. (Steel) 14,000 $ 15,975
Telecom Argentina S.A., ADR (Telecommunications) 1,350 37,125
----------
$ 53,100
- --------------------------------------------------------------------------------------------------------
Brazil - 12.5%
Centrais Eletricas Brasileiras S.A., ADR (Utilities-
Electric) 3,880 $ 33,019
Embratel Participacoes S.A. (Telecommunications)* 825,000 7,171
Petroleo Brasileiro S.A. (Oils) 2,649 28,808
Tele Centro Sul Participacoes S.A
(Telecommunications)* 825,000 5,464
Tele Norte Lests Participacoes S.A
(Telecommunications)* 825,000 6,761
Tele Sudeste Celular Participacoes S.A
(Telecommunications)* 825,000 2,322
Telebras Telecomunicacoes Brasileiras S.A
(Telecommunications)* 600,000 26,821
Telebras Telecomunicacoes Brasileiras S.A., Preferred
(Telecommunications)* 320,000 23,470
Telesp Celular Participacoes S.A. (Telecommunications)* 825,000 3,551
Telesp Participacoes S.A. (Telecommunications)* 1,590,000 20,401
Vale Rio Doce Cia, Preferred (Mining) 1,500 19,247
----------
$ 177,035
- --------------------------------------------------------------------------------------------------------
China - 5.7%
Huaneng Power International, Inc., ADR (Utilities -
Electric)* 3,740 $ 54,230
Wuxi Little Swan Co., Ltd. (Appliances) 63,600 26,107
----------
$ 80,337
- --------------------------------------------------------------------------------------------------------
Egypt - 2.2%
Suez Cement Co. (Construction) 850 $ 12,831
Suez Cement Co., GDR (Construction)## 1,330 19,019
----------
$ 31,850
- --------------------------------------------------------------------------------------------------------
Greece - 13.0%
Attica Enterprises S.A., GDR (Transportation) 7,440 $ 66,659
EFG Hermes Holding S.A.E. GDR (Finance)* 2,500 23,750
National Bank of Greece, GDR (Banks and Credit Co.) 380 85,454
Panafon Hellenic Telecom S.A. GDR (Telecommunications)* 330 8,834
----------
$ 184,697
- --------------------------------------------------------------------------------------------------------
Hong Kong - 3.8%
Guangdong Kelon Electric Holdings (Consumer Goods and
Services) 32,000 $ 28,501
New World Development Co. (Real Estate)* 10,000 25,171
----------
$ 53,672
- --------------------------------------------------------------------------------------------------------
Hungary - 4.6%
Borsodchem Rt (Chemicals) 1,476 $ 38,413
Magyar Olaj Es Gazipari KT (Gas) 1,000 27,313
----------
$ 65,726
- --------------------------------------------------------------------------------------------------------
India - 3.2%
Mahanagar Telephone Nigam Ltd., GDR
(Telecommunications) 2,100 $ 25,620
State Bank of India, GDR (Bank and Credit Cos.) 2,350 19,270
----------
$ 44,890
- --------------------------------------------------------------------------------------------------------
Israel - 3.1%
Makhteshim - Agan Industries Ltd. (Chemicals)* 20,446 $ 44,291
- --------------------------------------------------------------------------------------------------------
Jordan - 2.1%
Arab Bank Corp. (Banks and Credit Cos.) 100 $ 30,183
- --------------------------------------------------------------------------------------------------------
Mauritius - 3.3%
Rogers & Co. Ltd. (Conglomerate) 2,500 $ 17,287
State Bank of Mauritius Ltd. (Banks and Credit Cos
Financial Institution) 41,000 29,676
----------
$ 46,963
- --------------------------------------------------------------------------------------------------------
Mexico - 9.1%
Grupo Carso S.A. de C.V. (Conglomerate) 8,000 $ 49,000
Grupo Financiero Banamex,"B" (Financial Institutions)* 22,000 28,880
Grupo Television S.A. de C.V., GDR (Entertainment)* 2,050 50,610
----------
$ 128,490
- --------------------------------------------------------------------------------------------------------
Peru - 2.1%
Ferreyros S.A. ADR (Construction) 32,661 $ 29,508
- --------------------------------------------------------------------------------------------------------
Poland - 4.4%
Bank Handlowy W. Warszawie, GDR (Banks and Credit
Cos.)## 4,850 $ 62,807
- --------------------------------------------------------------------------------------------------------
Russia - 1.7%
Lukoil Oil Co., ADR (Oils) 643 $ 10,417
Vimpel Communications, ARD (Telecommunications)* 1,025 13,261
----------
$ 23,678
- --------------------------------------------------------------------------------------------------------
South Africa - 8.1%
JD Group Ltd. (Stores) 8,904 $ 39,335
Real Africa Durolink Holding Ltd. (conglomerate)* 2,619 3,159
Real Africa Holdings Ltd. (Conglomerate) 26,519 69,390
Sanlam Limited (Financial Institutions)* 2,810 2,793
----------
$ 114,677
- --------------------------------------------------------------------------------------------------------
South Korea - 2.7%
Pohang Iron & Steel Co. Ltd., ADR (Steel) 2,250 $ 37,969
- --------------------------------------------------------------------------------------------------------
Thailand - 0.9%
Bangkok Expressway Public Company Ltd. (Toll Road and
Transit) 2,300 $ 2,287
Electricity Generating Public Co. Ltd. (Utilties -
Electric) 1,100 2,993
PTT Exploration and Production Public Co. Ltd., ADR
(Oil Services) 750 5,304
Thai Farmers Bank (Banks and Credit Cos.) 1,400 2,475
----------
$ 13,059
- --------------------------------------------------------------------------------------------------------
Turkey - 3.8%
Vestel Electronic (Electronics)* 648,483 $ 53,500
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,756,819) $1,276,432
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.5%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., due 1/04/99, at
Amortized Cost $ 120 $ 119,955
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,876,774) $1,396,387
Other Assets, Less Liabilities - 1.4% 19,232
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,415,619
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ----------------------------------------------------------------------------
DECEMBER 31, 1998
- ----------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,876,774) $1,396,387
Cash 4,334
Foreign currency, at value (identified cost, $11,925) 11,700
Dividends receivable 2,911
Receivable from investment adviser 3,178
Deferred organization expenses 6,962
Other assets 9
----------
Total assets $1,425,481
----------
Liabilities:
Payable for Series shares reacquired $ 627
Payable to affiliate for management fee 49
Accrued expenses and other liabilities 9,186
----------
Total liabilities $ 9,862
----------
Net assets $1,415,619
==========
Net assets consist of:
Paid-in capital $2,242,465
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (480,622)
Accumulated net realized loss on investments and foreign
currency transactions (346,027)
Accumulated distributions in excess of net investment income (197)
----------
Total $1,415,619
==========
Shares of beneficial interest outstanding 239,986
=======
Net asset value per share
(net assets / shares of beneficial interest outstanding) $5.90
=====
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 8,691
Dividends 38,559
Foreign taxes withheld (1,494)
---------
Total investment income $ 45,756
---------
Expenses -
Management fee $ 19,157
Administrative fee 194
Trustee compensation 1,971
Shareholder servicing agent fee 536
Custodian fee 5,703
Auditing fees 6,821
Printing 9,311
Amortization of organization expenses 1,838
Legal fees 2,116
Miscellaneous 2,311
---------
Total expenses $ 49,958
Fees paid indirectly (485)
Reduction of expenses by investment adviser (26,485)
---------
Net expenses $ 22,988
---------
Net investment income $ 22,768
---------
Realized and unrealized loss on investments:
Realized loss (identified cost basis) -
Investment transactions $(335,900)
Foreign currency transactions (1,226)
---------
Net realized loss on investments and foreign currency
transactions $(337,126)
---------
Change in unrealized depreciation -
Investments $(338,747)
Translation of assets and liabilities in foreign
currencies (235)
---------
Net unrealized loss on investments and foreign currency
transactions $(338,982)
---------
Net realized and unrealized loss on investments and foreign
currency $(676,108)
---------
Decrease in net assets from operations $(653,340)
=========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in net assets:
From operations -
Net investment income $ 22,768 $ 432
Net realized loss on investments and foreign currency
transactions (337,126) (10,327)
Net unrealized loss on investments (338,982) (141,640)
---------- ----------
Decrease in net assets from operations $ (653,340) $ (151,535)
---------- ----------
Distributions declared to shareholders -
From net investment income $ (21,980) $ --
From paid-in capital (1,067) --
---------- ----------
Total distributions declared to shareholders $ (23,047) $ --
---------- ----------
Net increase in net assets from Series share transactions $ 734,941 $1,500,000
---------- ----------
Total increase in net assets $ 58,554 $1,348,465
---------- ----------
Net assets:
At beginning of year 1,357,065 8,600
---------- ----------
At end of year (including accumulated undistributed
(distributions in excess), net investment income of $
(197) and $232, respectively) $1,415,619 $1,357,065
========== ==========
* For the period from the commencement of the Series' investment operations, October 16, 1997, through
December 31, 1997.
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.00 $ 10.00
------- -------
Income from investment operations# -
Net investment income (loss)(S) $ 0.11 $ 0.00(+)
Net realized and unrealized gain on investments and foreign
currency transactions (3.11) (1.00)
------- -------
Total from investment operations $ (3.00) $ (1.00)
------- -------
Less distributions declared to shareholders -
From net investment income $ (0.10) $ --
From paid-in capital (--)(+) --
------- -------
Total distributions declared to shareholders $ (0.10) $ --
------- -------
Net asset value - end of period $ 5.90 $ 9.00
======= =======
Total return (33.37)% (10.00)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.53% 1.50%+
Net investment income 1.49% 0.16%+
Portfolio turnover 73% 8%
Net assets at end of period (000 omitted) $1,416 $1,357
* For the period from the commencement of the Series' investment operations, October 16, 1997, through
December 31, 1997.
+ 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.
(+) Per share amount was less than $0.01 per share.
(S) Subject to reimbursement by the Series, the investment adviser agreed to maintain 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/under this limitation, the net investment income per share and the ratios would have
been:
Net investment loss $ (0.02) $ (0.15)
Ratios (to average net assets):
Expenses## 3.26% 5.92%+
Net investment loss (0.24)% (4.26)%+
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS/Foreign & Colonial Emerging Markets Equity Series (the Series) formerly
known as MFS(R) Strategic Fixed Income 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 Market 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 8 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that 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.
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. 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
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported on the Series' tax
return. 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, $150 was reclassified from
accumulated undistributed net investment income and $1,076 from paid-in
capital, to accumulated net realized loss on investments and foreign currency
transactions due to differences between book and tax accounting for currency
transactions. In addition, $1,067 was redesignated as a tax return of capital
distribution. This change had no effect on the net assets or net asset value
per share. At December 31, 1998, accumulated undistributed net investment
income and accumulated net realized loss on investments and foreign currency
transactions under book accounting were different from tax accounting due to
temporary differences in accounting for currency transactions and capital loss
carryforward. Distributions to shareholders are recorded on the ex-dividend
date.
At December 31, 1998, the Series, for federal income tax purposes, had a
capital loss carryforward of $342,172 which may be applied against any net
taxable realized gains of each succeeding year until the earlier of its
utilization or expiration on December 31, 2006, ($332,045), and December 31,
2005, ($10,127).
(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 1.25%
of average daily net assets. The Series has a temporary expense reimbursement
agreement whereby MFS has voluntarily agreed to pay all of the Series'
operating expenses, exclusive of management fees. The Series in turn will pay
MFS an expense reimbursement fee not greater than 0.25% of average daily net
assets. This is reflected as a reduction of expenses in the Statement of
Operations. 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 $38,407. The advisory agreements permit the
adviser to engage one or more sub-adviser, MFS, has engaged Foreign & Colonial
Management Ltd., an England and Wales Company, to assist in the performance of
its services.
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 Fund's 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%
The Series pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Series' average daily net assets at an effective annual
rate of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$1,728,217 and $989,684, respectively.
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 $1,880,629
----------
Gross unrealized appreciation $ 70,512
Gross unrealized depreciation (554,753)
----------
Net unrealized depreciation $ (484,242)
==========
(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, 1998 PERIOD ENDED DECEMBER 31, 1997*
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 229,218 $1,803,559 150,000 $1,500,000
Shares issued to shareholders in
reinvestment of distributions 3,872 23,047 -- --
Shares reacquired (143,964) (1,091,665) -- --
-------- ---------- -------- ----------
Net increase 89,126 $ 734,941 150,000 $1,500,000
======== ========== ======== ==========
* For the period from the commencement of the Series' investment operations, October 16, 1997, through
December 31, 1997.
</TABLE>
(6) Line of Credit
The Series and other affiliated funds participate in a $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 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 year ended December 31, 1998, was $12.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of MFS Variable Insurance Trust and Contract Owners of
MFS/Foreign & Colonial Emerging Markets Series:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS/Foreign & Colonial Emerging
Markets Equity Series (the Series) (one of the series constituting the MFS
Variable Insurance Trust) as of December 31, 1998, the related statement of
operations for the period then ended, and the statements of changes in net
assets and the financial highlights for the years ended December 31, 1998, and
1997. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at December 31, 1998 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/Foreign &
Colonial Emerging Equity 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>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VEM-2 2/99 5m
